Tuesday, November 8, 2011

Living abroad and getting money from the IRS

Many Americans complain that they have to file US taxes, even though they live abroad, and may have little connection with the US.

However, if you don’t make too much money and you work in a high tax country like Spain, and have kids, the IRS may actually owe YOU money!

How does this work? It’s pretty simple: suppose you make $50,000 a year and have two kids. Normally you would owe around $4,500 in taxes in the US. However, since Spain generally has higher taxes and has a double-taxation treaty with the US, you can use the “foreign tax credit” and wipe that out so your taxes payable in the US are zero.

Now comes the wonders of the “additional child tax credit”, which is around $1,000 per kid. This gets added to the $0 you owe, meaning that you actually get a refund from the IRS for $2,000!

Bonus note: if you are married to a Spaniard with no US Greencard or passport (technically called a non-resident alien), you can consider yourself “single”, or even “single head-of-household” for US tax purposes.

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