# US taxes and UK child benefit/child tax credit



## symphony63

Hi, does anyone know if we include child/working tax credit and child benefit from UK as part of our worldwide income, and can we exclude it with the Earned Income tax exclusion for US taxes?


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## BBCWatcher

OK, let's carefully separate these various elements. I'll address your second question first:

1. A U.K. tax credit is not U.S. foreign earned income. So no, you cannot include a U.K. tax credit as part of the U.S. Foreign Earned Income Exclusion.

2. A U.K. child benefit is not U.S. foreign earned income either. So no, you cannot include a U.K. child benefit as part of the U.S. Foreign Earned Income Exclusion.

Refer to IRS Publication 54 for guidance on what is and is not foreign earned income.

OK, now turning to your first question:

3. A U.K. tax credit is not income for U.S. purposes. However, if you're taking the U.S. Foreign Tax Credit a U.K. tax credit obviously factors into that calculation.

4. The U.K. child benefit is somewhat ambiguous. However, it appears to be a "welfare or other public assistance benefit based on need," i.e. based on having a (needy) child in this case. It is not a payment for services you perform. I'm assuming you are not providing foster care. (A benefit you receive from a government to provide foster care is generally not U.S. taxable income, but there are a few exceptions.) So I think you're on safe ground leaving the U.K. child benefit out of U.S. reportable income.

Refer to IRS Publication 525 for guidance on taxable and nontaxable income.

As always, keep personal financial records, even for income you are not required to report, just in case the IRS has a question or two in the future.

By the way, if your child is a U.S. citizen child living with you, I recommend you run a simulated tax calculation without the Foreign Earned Income Exclusion and instead rely solely on the Foreign Tax Credit (or skip the FTC too if your U.K. tax is zero or better). Then see if you can claim the Additional Child Tax Credit, a U.S. refundable tax credit. It may also be possible to receive a child benefit from the U.S. in that way.


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## Bevdeforges

In brief, the FEIE is applicable only to "earned" income, i.e. salary and wages (and a couple other categories of things that are "like" salary and wages).

But tax credits are simply "refunds" of taxes already paid, not income. If you take the foreign tax credit, you have to subtract any "tax credits" from the taxes you are paying in the current year.

And "public assistance" payments are specifically excluded from the definition of income - see IRS Publication 525 for further information.
Cheers,
Bev


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## symphony63

In the UK tax credits do not come as "refunds" of taxes already paid but as top-up income to low income families (upto £50k).
That was my question, is it classed as "public assistance" payments or not.
I have seen conflicting advice on this.


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## Bevdeforges

I suppose it depends on why they are called "tax credits" rather than benefits. But I suspect you could get away with treating them either way (and frankly considering them "public assistance payments" and thus "not income" and "not reportable" is probably the way to go).

Honestly, the IRS has not taken a firm position on every sort of foreign payment. If they should ever come back and question you on it, all they want is to know on what basis you treated it at the time. (And the chances of them ever coming back on a "low income family" member are slim to none unless you've done something really out of the ordinary on the rest of your forms.)
Cheers,
Bev


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## BBCWatcher

The U.K. Working Tax Credit is very similar to the U.S. Earned Income Tax Credit, and the U.K. Child Tax Credit is very similar to the U.S. (Additional) Child Tax Credit. The IRS is quite familiar with the concept of refundable tax credits because the U.S. has some, too.


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## iota2014

Actually, the UK Working Tax Credit is a benefit, not a refund of tax paid.



> EIM76100 - Social security benefits: list of non-taxable social security benefits
> Part 10 ITEPA 2003
> UK social security benefits specified at Table B Parts 1 and 2 at Section 677(1) ITEPA 2003 are wholly exempt from tax.
> 
> The following benefits are not taxable. The benefits are described at the paragraphs mentioned below:
> 
> Attendance Allowance
> Back to Work Bonus (see EIM76223)
> Bereavement Payment (see EIM76171), replaced Widow's Payment from 9 April 2001
> Child Benefit
> Child's Special Allowance
> *Child Tax Credit*
> Cold Weather Payments, see also Winter Fuel payment
> Council Tax Benefit, administered by local authorities
> Constant Attendance Allowance, see industrial disablement benefit below
> Disability Living Allowance
> Income related Employment and Support Allowance (see EIM76186)
> Exceptionally Severe Disablement Allowance, see industrial disablement benefit below
> Guardian's Allowance
> Housing Benefit, administered by local authorities
> Incapacity Benefit for first 28 weeks of entitlement, taxable thereafter (see EIM76180)
> Income Support, certain payments (see EIM76190)
> Industrial Injuries Benefit, a general term covering industrial injuries pension, reduced earnings allowance, retirement allowance, constant attendance allowance and exceptionally severe disablement allowance
> Invalidity Benefit, replaced by Incapacity benefit from April 1995 but still payable where invalidity commenced before April 1995.
> In-work credit
> In-work emergency discretion fund payment
> In-work emergency fund payment
> Maternity Allowance, see EIM76361
> Payments out of the Social Fund to people on a low income to help with maternity expenses, funeral costs, financial crises and as community care grants. The fund also makes interest-free loans.
> Pensioner's Christmas Bonus
> State Pension credit
> Reduced Earnings Allowance, see industrial disablement benefit above
> Retirement Allowance, see industrial disablement benefit above
> Return to work credit, including the self-employment credit
> Severe Disablement Allowance
> Universal Credit
> War Widow's pension, see EIM76103
> Winter Fuel payment
> *Working Tax Credit.*


http://www.hmrc.gov.uk/manuals/eimanual/eim76100.htm


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## BBCWatcher

So is the Additional Child Tax Credit, Iota2014. (And so is the Earned Income Tax Credit.) The U.S. and the IRS are indeed familiar with the concept.


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## iota2014

Is the Earned Income Tax Credit taxed as income?


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## BBCWatcher

The U.S. EITC is not taxed by the U.S. (The IRS pays out the EITCs.) What other countries do is up to their tax codes and any tax treaties they have with the U.S.


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## iota2014

Interesting. Thanks.

A little glimpse of CBT in action, thriftily moving capital from the UK Treasury to the US.


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## BBCWatcher

iota2014 said:


> A little glimpse of CBT in action, thriftily moving capital from the UK Treasury to the US.


I do not understand this sentence.


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