File 1116 instead of 2555, in order to get Additional Child Tax Credit via 8812?

Okay, I've been doing my taxes for the last few years by filing 2555 to exclude my foreign income.  A friend suggested to me that I should look into filing 8812 to claim the Additional Child Tax Credit, on line 68 of the 1040.  However, the instructions/worksheet on the back of 8812 say you must subtract any income excluded on 2555, and the effect of this is that 8812 results in 0, i.e. no additional CTC. 

I then got curious about using 1116 to take a foreign tax credit, instead of excluding the foreign income on 2555.  This works to eliminate any tax payable on all my income - the credit works out to be quite a bit more than the tax I would owe if I don't exclude anything via 2555.

The advantage of doing it this way is that it means 8812 works: it appears I can then get the $1000 per child. 

Am I missing something?  Is there any rule that says I have to do it one way or the other? Can I really get the $1000 per child even though I'm not actually paying any US tax? 

many thanks...

You are thinking 100% along the right lines.

You can indeed get UK child benefit plus UK child tax credit (both of which are sadly regarded as taxable income by the IRS) plus US refundable child tax credits.

You can even amend last year & get an extra refund now if you didn't know about this trick last year.

Now for the bad news.  Electing out of the section 911 exclusion now means you can't claim it again for 5 years.  BUT you don't & can't know now whether this choice might cost you money in say 2 or 3 years time...

I agree.  However, I haven't been amneding prior years because I did it this way last year for my clients already.

Thanks for your replies.  A couple of further questions, then:

Was either of these provisions (additional CTC credit, or foreign tax credit) new last year?  The reason I ask is that I thought it was possible to amend tax returns for several previous years, not just last year.  Can I go back further than last year to get this additional CTC?

Also, I've been trying to figure out what sort of situation would lead to a disadvantage from having elected out of the section 911 exclusion.  As long as I can continue to take the foreign tax credit, it seems it wouldn't matter if I can't do the 2555 exclusion for five years.

Thanks again.

A tax law change in 2004, which became effective for tax years 2005 and beyond, resulted in this nice benefit.  Making a change prior to 2005 probably won't do you any good.  Only people with a very narrow income range benefited previously.  It can't hurt to run the numbers.  However, if, say, the benefit occurs in 2003, but not in 2004, and you change 2003, you must then also change 2004 and pay back tax.  Thus, it may not be worth the effort.

Electing out of the section 911 exclusion now means you can't claim it again for 5 years. 

Glad this cropped up - I was thinking of doing a MFS return for my wife and simply not bothering with the 2555 this year because she earned less than the standard deduction+exemption (was mostly looking after our daughter). Didn't occur to me that there might be any negative implication in that.

Now I'm getting interested in this 8812 business. Interestingly, both TurboTax & TaxAct say that we would get more if we exclude her income on a 2555 instead of just relying on the 1116. Maybe they're getting the interaction between the forms wrong anyway, but is there any reason why you can't use a 2555 for one spouse and not the other (I can't see any)?

sure, you can opt for 2555 for one and not the other.  Run the numbers yourself, see what comes up.

Old thread but posting an update in case it helps others.

I filed 2555 Foreign Income Exclusion for 2007 and 2008 (filed together, late) and received a letter from IRS informing me that I could be eligible for Additional Child Tax credit.

In November last year I filed amendments for 2007 and 2008, using 1116 Foreign Tax Credit instead of 2555, and using 8812 to claim additional child tax credits for our two children.

Today we received two cheques for the $2000 additional child tax credit for each year plus interest!