US tax law has been recently changed regarding Form 2555 (Exclusion of Foreign Earned Income) and the Additional Child Tax Credit. The Child Tax Credit (known as the “Additional Child Tax Credit”) will no longer be refundable for taxpayers electing to exclude foreign earned income from tax. You may need to immediately change your tax withholding and/or expect to pay significantly more taxes when you file your return.
Change in Tax Law Takes Away Refundable Child Tax Credit for Overseas Filers of Form 2555.
As part of the Trade Preferences Extension Act of 2015 passed by Congress and signed into law by the President on Jun 29, 2015, tax law has been changed regarding those who file Form 2555 (Exclusion of Foreign Earned Income) and who also received the refundable Additional Child Tax Credit. As noted below in the quotation from the law, the Child Tax Credit (also known as the “Additional Child Tax Credit”) will no longer be refundable for taxpayers electing to exclude foreign earned income from tax.
Briefly, this means that those who file Form 2555 and who relied upon this refundable credit to offset part or all of their Self-Employment tax will no longer be able to do this, which MAY result in the loss of thousands of dollars of this credit! You may need to change your tax withholding.
Text of Law
Section 807. Child tax credit not refundable for taxpayers electing to exclude foreign earned income from tax
(a) In general - Section 24(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
(5) Exception for taxpayers excluding foreign earned income
Paragraph (1) shall not apply to any taxpayer for any taxable year if such taxpayer elects to exclude any amount from gross income under section 911 for such taxable year.
(b) Effective date - The amendment made by this section shall apply to taxable years beginning after December 31, 2014
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