US taxes and UK child benefit/child tax credit

Hi does anyone know if we include child tax credit and child benefit from UK as part of our worldwide income, and can we exclude it with the Earned Income tax exclusion for US taxes? I need to send my taxes out by Sat. so if anyone knows the answer that would be great.

All income is taxable unless exempt under the IR Code.

Therefore this is taxable foreign source income on form 1040 and 1116.

It is not earned income so does not qualify for the foreign earned income exclusion.

Thanks Guya, so just to clarify that we need to report both of these things (and I'm guessing then too interest earned on our foreign bank account?) on which line of the 1040?

I keep getting conflicting advice re UK child/working tax credit.

As this is a income related benefit, is it classed as a  "welfare or other public assistance benefit based on need" therefore not a taxable foreign source income.

Or, it is classed as a taxable foreign source income as it does come as an income and not as a credit and can not be deducted from a UK tax return.

Hi Symphony63 -

If it helps, a poster in an earlier thread (http://talk.uk-yankee.com/index.php?topic=68810.0) reports being told by the London Embassy IRS office (since closed) that Child Benefit should be reported as "Other Income",  i.e. as taxable income.

Thank you, I wonder if there are anymore updates since Aug 2015

This is another example where CBT creates massive unfairness. In the US the IRS does not tax things like food stamps and many other government paid benefits. I get health insurance premium assistance in the US which is not taxed by the IRS and obviously not by HMRC because I'm not a UK resident.

https://apps.irs.gov/app/vita/content/globalmedia/teacher/examples_of_taxable_nontaxable_income.pdf

In the UK similar benefits are also not taxed by HMRC, but because of CBT and US domestic rules US citizens must include foreign benefits payments in their worldwide income. This is an area where the DTT should be improved to allow only the residence country to tax it's benefit payments. This is similar in spirit to the SS treaty article.......but if drafted a benefits article should be better written.

Any chance the child benefit could be paid to someone who's not a US citizen?

This is similar in spirit to the SS treaty article.......but if drafted a benefits article should be better written.

Actually, it would indeed come under 17(3), wouldn't it?  It's definitely a payment under the Social Security legislation of one of the Contracting States. (See  http://www.hmrc.gov.uk/manuals/eimanual/eim76100.htm)

That's better than it coming under the "Other Income" article, which offers nothing at all to US citizens.  But there's still the uncertainty about how the IRS treats non-cross-border SS payments.

A response to the question has just been offered on the ExpatForum site which may be more in line with the desired response sought.

I would offer this thought: the benefit is available up to a £50k cap, in a country where the average wage is roughly £28k. Would someone feel comfortable offering a reason for not including the amount as income on a 1040 as "it's a 'public assistance payment' for 'low income families'"?

Yes, the problem is CBT and yes, we've discussed 17(3) before. What is offered on ExpatForum is the likelihood of a return being challenged. That's territory best left up to the individual filer, and their tolerance for compliance versus risk. 

Actually, it would indeed come under 17(3), wouldn't it?  It's definitely a payment under the Social Security legislation of one of the Contracting States. (See  http://www.hmrc.gov.uk/manuals/eimanual/eim76100.htm)

That's better than it coming under the "Other Income" article, which offers nothing at all to US citizens.  But there's still the uncertainty about how the IRS treats non-cross-border SS payments.

This argument has been made many times......and rejected. The SS treaty article is specific and limited to US SS and UK state pension payments.....not other benefits payments even if they are locally described as social security.

Rejected by the IRS?

A suggestion, OP.  You could ask your local Citizens Advice Bureau for advice.  Although they probably wouldn't know the answer, they might well take steps to find out, since it concerns a taxfree benefit intended to be used wholly for the welfare of children.  And the CAB has contacts, and is better placed to find the right person within HMRC to talk to. 
https://www.citizensadvice.org.uk

There's a box where you can put in your postcode and find your local office.

.....so just to clarify that we need to report both of these things (and I'm guessing then too interest earned on our foreign bank account?) on which line of the 1040?

Yes and yes. Start from the presumption that all your worldwide income, earned and unearned, is US taxable. Only items specifically exempted are non-taxable like certain amounts of foreign earned income etc.

Rejected by the IRS?

Well, to me by an IRS agent based in the UK who was asked the question many times and by professionals far more knowledgeable than you or me.