American citizens living in Israel with children up to age 17 will soon be benefitting from the U.S. tax reform approved by Congress in December, and recently approved in their final form that raises the child tax credit which parents can claim.
The credit can be used to reduce tax liabilities owed by U.S. citizens to the Internal Revenue Service and if the filer has no liability may even result in a refund.
Philip Stein, who heads the Jerusalem-based accounting firm Philip Stein & Associates, said the U.S. tax authorities don’t take into account that many American citizens living in Israel are Orthodox or ultra-Orthodox Jews with large families and low incomes, and pay relatively high local taxes.
“The result is that in Israel there are a relatively large number of families that qualify for the tax credit for children,” he said.
In contrast to the system in Israel and most of the world, U.S. citizens must file a tax statement even if they aren’t living in the United States as long as their annual income exceeds $12,000. Anyone with American citizenship or who holds a Green Card – and there are believed to hundreds of thousands of them in Israel – must also file a report on their bank account balance as well.
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However, because Israeli tax rates are relatively high, a U.S. citizen or Green Card holder usually receives a U.S. tax credit.
The latest tax reform still requires that U.S. citizens and Green Card holders could only receive the credit if their minor children were also American citizens and had a Social Security number.
Yaacov Jacob, who specializes in U.S. taxes at Philip Stein & Associates, said that until this year the minimum income that two parents could earn to qualify for the credit was a combined $3,000 a year. The maximum value of the credit was $1,000 for each child their combined income needed to be at least $10,000 a year.
Under the reform measures, Jacob said the minimum income has been cut to a joint $2,500 a yearand the top credit has been boosted to $1,400 per child. In addition, a filer could be entitled to another $600 a year credit if the filer has taxable income in the United States, he said.
A family with five children entitled to the credit could get an additional $2,000 a year for a total of $7,000.
The credit can now be taken by couples with annual incomes of up to $400,000 and for single parents up to $200,000 annually, up from a ceiling of $110,000 for a couple. The income must come from wages and earning income from businesses and not from pensions payments or realities.
The reform go into effect starting in the 2018 tax year, that is for statements filled in 2019. If a filer’s children get U.S. citizenship of a Green Card in 2019, however, they don’t qualify for the credit for the 2018 tax year.