I know I complain a lot about having to file US taxes every year, but for many Americans living abroad with children, they may actually be missing out on a significant tax refund:
Juan and Jill live in Spain. Jill is a US citizen; Jill makes 80,000 annually and Juan is a native Spaniard who doesn’t work. They have no other income. They have 3 little kids all under 17.
There are three options:
1) Jill doesn’t file US taxes and risks getting in trouble if she ever goes back to the US.
2) Jill files US taxes using the Foreign Earned Income Exclusion, end up owing 0 in US taxes.
3) File joint US taxes using the Foreign Tax Credit for taxes paid in Spain. Juan elects to be treated as a US resident for tax purposes under §6013(g). They fill out form 8812 “Additional Child Tax Credit” and get a refund of $3000 from the IRS.