Do I putChild benefit and child tax credit on my 1040?

Hi all,

Just a question that someone on another forum brought to my attention and I thought I'd bring it up here for some clarification...

I receive child benefit and child tax credit here in the UK.  I am also a stay at home mom, so the only other income I receive is my paltry interest from my savings accounts (a grand total of $26 this year I think lol).

So, do I need to put UK child benefit and tax credit on my 1040 form, and if so, which box?

Thanks!

As to whether you need to file a US tax return on account of income, see http://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F

As to whether child benefit and various tax allowances are taxable in the USA see this thread dated 2011 http://talk.uk-yankee.com/index.php?topic=68810.0

Some argue that even with zero income an Amcit with a foreign bank account of any amount needs to file Form 1040 Sched. B and check the box at the bottom. There have been zero prosecutions and zero penalties assessed in the past for failure to do so for US residents where the foreign account balance was low and total income insufficient otherwise to file. (I would still file in such a case, however. You never know.)

There have been zero prosecutions and virtually no effort to identify noncompliant middle-class Americans abroad, and this is why: http://wapo.st/1Gmmjqz (Washington Post, "IRS out of money"). I have met several low-paid (£30k a year and below, no significant assets other than a home) who have impoverished themselves to file OVDP. As John Richardson, an Canadian-American lawyer who occasionally has lectured in London says, "What's the point?" http://citizenshipsolutions.ca

That is true, probably, of British citizens and dual nationals. Those without local citizenship could, arguably, be subjected to the proposed mutual tax collection procedure. Some say they could be extradited for tax crimes under the proposed extradition treaty (the present one, drafted to expedite extradition of terrorists, is even now mainly used for financial crimes -- and in cases where the UK has chosen not, itself to prosecute. Start your research with "Natwest Three".

But I digress. See today's Washington Post.

So, do I need to put UK child benefit and tax credit on my 1040 form, and if so, which box?

Thanks!

Unfortunately, yes you do. The tax treaty does not exclude UK benefits from US taxation even if they are tax free in the UK. I'd enter them on 1040, line 21, "Other Income".

Unfortunately, yes you do. The tax treaty does not exclude UK benefits from US taxation even if they are tax free in the UK. I'd enter them on 1040, line 21, "Other Income".

Further to this....when on TaxAct I try to input my child benefit and child tax credit amounts into "other income" a box pops up explaining that there is a new IRS rule which means with over $400 of "other" income, the IRS will look into these sources and potentially delay my return and come back to me for more information.  I have to tick a box which says I understand what that means.  But...what does that mean?!  Should I still put this amount (over $12,000) on the other income line or is there a better place for it?  Help?!

Further to this....when on TaxAct I try to input my child benefit and child tax credit amounts into "other income" a box pops up explaining that there is a new IRS rule which means with over $400 of "other" income, the IRS will look into these sources and potentially delay my return and come back to me for more information.  I have to tick a box which says I understand what that means.  But...what does that mean?!  Should I still put this amount (over $12,000) on the other income line or is there a better place for it?  Help?!

Line 21 is where I report my UK pension and I didn't have the IRS come back to me. I enter the words UK pensions to describe it. If they do come back for more explanation, what else more could I say?

Line 21 is where I report my UK pension and I didn't have the IRS come back to me. I enter the words UK pensions to describe it. If they do come back for more explanation, what else more could I say?

When I consulted IRS (not in an audit, but it could have led to that) I was told to assimilate all my state pensions from all countries subject to Totalisation Agreements to US Social Security, and include them all on line 20.

On various online forums various experts have disagreed. But over 10 years and more than one examination this has never been questioned by the IRS.

The issue is this: the IRS (Treasury actually) is charged with interpreting and applying the tax law. They are not always consistent and until and unless there is a Regulation, or with respect to a specific taxpayer a Revenue Ruling, it works. At least for some.

I am not saying this is right; just that more than one IRS officer has said it is. And let me add this principle of administrative law: the USG is not responsible for the errors of its agents.

I have been to Tax Court, and won, on other issues. I'm not sure there would be enough of a tax result for the IRS to join me in litigation on this one. Except that everything on line 20 is effectively taxable only in the UK.

For the rest: the issue is whether the benefits were paid to the parent in her own right or as trustee for the child. In the case of the (former) Child Trust Fund (£250 + £250) it's clear that it's taxable in the USA, if at all, to the child. It is not taxable to the parent as child's income unless the child is, himself/herself a taxable US person.

For the parental benefits it's obvious that if there is a non-US parent, it's that parent who should claim the benefits, if possible.

Finally there's this: from the standpoint of a tax collector, every bit of income should be taxable somewhere even if the effective rate is zero. (That's indeed an OECD principle, it can be looked up.) It is when it is not taxable in any country with a "substantial" marginal rate of tax that the civil servants who run our tax agencies get exercised.

But perhaps I'm being too philosophic. It comes with age.

When I consulted IRS (not in an audit, but it could have led to that) I was told to assimilate all my state pensions from all countries subject to Totalisation Agreements to US Social Security.

On various online forums various experts have disagreed. But over 10 years and more than one examination this has never been questioned by the IRS.

The issue is this: the IRS (Treasury actually) is charged with interpreting and applying the tax law. They are not always consistent and until and unless there is a Regulation, or with respect to a specific taxpayer a Revenue Ruling, it works. At least for some.

I am not saying this is right; just that more than one IRS officer has said it is. And let me add this principle of administrative law: the USG is not responsible for the errors of its agents.

I maybe should have specified UK private pensions, I'm not yet collecting any UK State pensions so I don't think reporting them as part of a Totalization Agreement with Social Security is correct in this case.