UK Child Benefit - Tax Treaty claim

Folks,

I have a question about the UK Child Benefit.  My assumption is that you have to include this benefit in "other income" on your US tax return.

It's been suggested to me that the US/UK Tax treaty allows for this benefit to be non-taxable.  Is this true?

If so, do you have to bother reporting this income?  Or do you have to report it, and then get back the tax via another form?

Thanks.

Paul

IRS Publication 525 says:

Do not include in your income governmental benefit payments from a public welfare fund based upon need, such as payments to blind individuals under a state public assistance law.

It's basically a judgment call, I think, as to whether Child Benefit is in that category.  I would say that it is, because nowadays it's means-tested.  So If I received Child Benefit, I would exclude it from Gross Income.  (I excluded the Winter Fuel Allowance from my Gross Income for a similar reason - Pub. 525 says "Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable.")

IRS Publication 525 says:
It's basically a judgment call, I think, as to whether Child Benefit is in that category.  I would say that it is, because nowadays it's means-tested.  So If I received Child Benefit, I would exclude it from Gross Income.  (I excluded the Winter Fuel Allowance from my Gross Income for a similar reason - Pub. 525 says "Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable.")

Extending IRS 525 to cover foreign payments is very aggressive. The usual answer here is that UK benefits are fully taxable in the US.

Extending IRS 525 to cover foreign payments is very aggressive. The usual answer here is that UK benefits are fully taxable in the US.

As far as I can see there's nothing "aggressive" about it - nothing anywhere that I've seen says it doesn't apply, so I take the view that if the IRS wanted to forbid it (and had the power to do so under the Code), they'd likely say so.  But, as I say, it's a judgment call.

According to Publication 525:
"You must include in your income any welfare payments that are compensation for services...."

From GOV.UK:
"You don’t need to be working to claim Child Tax Credit."

So far, so good.

Now, all we need is to be certain that the US Government offers a "Child Benefit" comparable to the UK "Child Tax Credit".

No, they don't.
"The USA does not offer child benefit"
http://usa.angloinfo.com/family/toddlers/child-benefit/

The US Government does offer a "Child Tax Credit".
https://www.irs.gov/uac/Ten-Facts-about-the-Child-Tax-Credit
It is computed when filing a tax return and is paid only after the return is filed, but certain conditions must be met to qualify. (iota knows about this "free money"     )

There are U.S. States that offer "Child Health Benefits" (Michigan, for example), but the U.S. Government does not offer direct child benefits that are tax beneficial on a US tax return.

http://theweek.com/articles/442864/why-government-should-pay-every-american-child-allowance

http://www.telegraph.co.uk/news/politics/8041774/Child-benefit-how-it-compares-across-the-world.html
(Find the U.S.A. other than Michigan)

Draw whatever conclusion you wish.



 

The US Government does offer a "Child Tax Credit".
https://www.irs.gov/uac/Ten-Facts-about-the-Child-Tax-Credit
It is computed when filing a tax return and is paid only after the return is filed, but certain conditions must be met to qualify. (iota knows about this "free money"     )

Do I?  I'm lost, can you explain?  Is it in reference to a recent thread elsewhere?

Also lost as to the reasoning for looking for a direct equivalent to a US benefit.  Is that based on a statement in Publication 951?

Do I?  I'm lost, can you explain?  Is it in reference to a recent thread elsewhere?

BBCWatcher? Or, are you now a different iota?

Also lost as to the reasoning for looking for a direct equivalent to a US benefit.  Is that based on a statement in Publication 951?

Publication 951 is Social Security. What's SSA to do with any of this?

BBCWatcher? Or, are you now a different iota?

That's what I thought you must be referring to, but I still don't get it.

Interestingly, BBCWatcher and Bev have both expressed the view (in a different thread) that Child Benefit is covered by Publication 951.

Publication 951 is Social Security.

Child Benefit is a UK Social Security benefit.

As I keep saying, it's a judgment call. 

Social Security has nothing to do with child benefit, attendance allowance etc. Just because the UK calls such benefits "social security" benefits in its publications does not mean that they are SS as defined in the Tax Treaty. To look for an equivalent benefit scheme in the US and then apply internal IRS rules to foreign accounts is very dangerous. Think about UK pension schemes, you can't just apply US retirement account tax rules to those and get away with it. The same goes for UK benefits payments. To the IRS they are foreign income and don't get any special tax treatment. They are fully taxable. It's not a matter of interpretation.


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Interestingly, BBCWatcher and Bev have both expressed the view (in a different thread) that Child Benefit is covered by Publication 951.

And as Bev admits, it's a try it and see. Bev's stance on different topics is often quite good, but at times Bev is incorrect when it comes to topics concerning the UK.

Child Benefit is a UK Social Security benefit.

Yes, there is a segment of SSA concerning child benefits. Is UK Child Tax Credits comparable to SSA Child Benefits?

Nun suggested claiming so would be an aggressive stance. You countered with "why is it aggressive?". My only comment is there is no where in Title 26 that allows a foreign Child Tax Credit to be excluded/exempt from declared income. Is there anywhere in the Treaty that allows it? If not, it's an aggressive stance.
 

As I keep saying, it's a judgment call.

My only comment would be if someone wishes to take the stance that UK Child Tax Credits are excluded/exempt from being declared on a US return, they should have a solid indication within either the Treaty or Title 26 to quote as to why this should be so. I, personally, would be reluctant to do so until someone offers a reasonable explanation as to where/why it is no longer aggressive/not allowed.

Social Security has nothing to do with child benefit, attendance allowance etc. Just because the UK calls such benefits "social security" benefits in its publications does not mean that they are SS as defined in the Tax Treaty. To look for an equivalent benefit scheme in the US and then apply internal IRS rules to foreign accounts is very dangerous. Think about UK pension schemes, you can't just apply US retirement account tax rules to those and get away with it. The same goes for UK benefits payments. To the IRS they are foreign income and don't get any special tax treatment. They are fully taxable. It's not a matter of interpretation.

Of course it's a matter of interpretation.  You've just expressed your interpretation, I've expressed mine.

Ultimately it would be down to the Competent Authorities to settle.  It would be interesting to see a decision, if it ever arises.

And as Bev admits, it's a try it and see. Bev's stance on different topics is often quite good, but at times Bev is incorrect when it comes to topics concerning the UK.
Yes, there is a segment of SSA concerning child benefits. Is UK Child Tax Credits comparable to SSA Child Benefits?

Sorry, don't know what you mean.

Nun suggested claiming so would be an aggressive stance. You countered with "why is it aggressive?".

No, I said as far as I can see there's nothing "aggressive" about it.  (Unlike this thread.). And that is still my opinion.
 

Of course you could claim that the entire tax code is all about interpretation and waiting for a ruling isn't going to help people trying to file their taxes according to the generally held application if the rules. According to the old IRS UK embassy office which dealt with quite a few cases involving UK benefits, they are fully US taxable....no tax exemptions; I have never seen a tax professional claim any US tax exemption for them either and I'll go with the opinion of the professionals on this one as from my own reading I agree with them.


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Unfortunately Paul, you've been ignored through all this, so to answer your questions;

It's been suggested to me that the US/UK Tax treaty allows for this benefit to be non-taxable.  Is this true?

You'll have to draw your own conclusions from the above posts. If your conclusion is UK Child Tax Credits are not reportable, then you wouldn't include them in income on line 21 of the 1040. If your conclusion is they are reportable, then you include them on line 21.

If so, do you have to bother reporting this income?  Or do you have to report it, and then get back the tax via another form?

If you include the UK Child Tax Credit on line 21, you have a possibility of claiming US Child Tax Credits on form 1040, up to $1,000 per child. There are restrictions on filing and some of those can be found here:

https://www.irs.gov/uac/Ten-Facts-about-the-Child-Tax-Credit

The form itself can be found here:

https://www.irs.gov/pub/irs-pdf/f1040s8.pdf

If you include the UK amounts on line 21, there is no way to "reclaim" those elsewhere on 1040 or other forms. The best you can do is file for the US amount which is treated as a refund (I believe, I'm not sure how this works. I've never claimed them.).

You'll have to draw your own conclusions from the above posts. If your conclusion is UK Child Tax Credits are not reportable, then you wouldn't include them in income on line 21 of the 1040. If your conclusion is they are reportable, then you include them on line 21.
If you include the UK Child Tax Credit on line 21, you have a possibility of claiming US Child Tax Credits on form 1040, up to $1,000 per child. There are restrictions on filing and some of those can be found here:

https://www.irs.gov/uac/Ten-Facts-about-the-Child-Tax-Credit

I would strongly encourage the OP to include UK benefit payments on line 21 of their 1040. There is no special tax treatment for them contained in the DTA.

One question theOAP, surely whether or not you get (or include) UK child tax credits has nothing to do with claiming US child tax credits.