Foreign Exclusion or Foreign Credit - adviser best?

Okay here goes - Opening a can of worms.....

Husband is US citizen and filed US taxes regularly since moving to UK always using the Foreign Earned Income Exclusion as seemed simple and have always just put in his total annual income and taken that off again with the exclusion (no other complicated elements to report as don’t have many savings (all under £3k and have a mortgaged house)

Now had one child and another on the way and been recommended to look at using the Foreign Tax Credit option instead of the Foreign  earned income exclusion so we could start claiming credits for our two children. We have always filed married filing separately with myself as a non resident alien and both our children will have SSN and US citizenship (one already has) and we know that using the foreign earned income exclusion as we currently do we cannot claim the child credit.

Does anyone have experience of this or any guidance? We don’t have any US bank accounts etc so are unsure of how we would even receive any refund/credits due?

We are wary of doing it wrong (as our current process is super simple!) and getting in trouble - so on that front wondered whether as things would be getting slightly more complicated are we better off finding an expat tax person to help us file? (We obviously don’t want do to this if it’s going to cost us more money than any refund we may be due as we would be better off just carrying on as we are) Any recommendations on anyone?

For reference - husband doesn’t have any complicated circumstances either, no expenses or extras to claim and earns less the £30k a year paying the standard UK tax and national insurance from one employer but does pay into an employer pensions scheme here in the UK.

Any and all guidance greatly appreciated!

I have always had to use the Foreign Tax credits since we moved back to England in 2016 as we are both retired and have foreign pensions.  It is not too difficult if you use tax filing software, and may well be easy to use without it, I don't know. We use TurboTax but I'm sure there are plenty of options, plus you'll be unable to buy TurboTax without a US credit card and address.

As you say, the tricky bit will be getting any refunds due without a US bank account.  Folks here have been recommending a TransferWise Borderless account which comes with both a UK style sort code and account number plus a US routing number and account number. That way dollars can be put in and pounds taken out. We still have a US bank account so haven't had that issue.

Hopefully others will come along with some actual experience.

Hi there,

I always think that the unknown is the biggest fear here.

My advice, download the 2019 1116 form and the instructions/worksheet, don't be too daunted and just try to fill it out as a test run.

It would even be worth you potentially paying someone to do it I guess. I'm not sure about the MFS - I always file MFJ as my wife is also a USC. However, we have no US bank accounts or anything, but for my 2019 I already received a cheque from the IRS for $2800 ($1400 per child) which I cashed into my UK HSBC account and it cleared within a few days (they say can be up to 6 weeks) and so received about £2250 for the pain of filing my own taxes. However, I taught myself and honestly believe working through and researching it first is a good first step, in a practice way.

Just be aware if you elect to use FTCs (form 1116) now over the FEIE (2555), I believe there is a period (6 years or similar?) where you are committed to that method. But again, as long as you have USC children and are earning money, I believe it is always favourable to do so ultimately.

Good luck!