Does my child need to file taxes? Example: Two Dutch parents have a child who was born in the US. The child has a US passport. When does the child need to file taxes and/or an FBAR?
In short: A child needs to start filing taxes when it makes money. Depending on the height and type of income your child would also owe taxes. Usually when abroad no tax is owed because of exclusions and tax paid in the country of residence. Besides filing tax returns your child might need to file an FBAR if it has a bank account abroad. See more for a step-by-step explanation:
Determine if there is a filing requirement. The IRS has a clear explanation on its site. In the example, they talk about earned and unearned income which means active or passive income. Check IRS Filing requirements.
If you don’t need to file you can skip this step and go to step 3. If you do need to file you may be able to benefit from Foreign income exclusions. which applies to earned income. This means that you benefit from an amount that is tax-free when you live abroad. Do note that children often do not work and don’t generate earned income but do generate unearned income which would make a foreign income exclusion not applicable.
If your child generates income that isn’t eligible for the exclusion it might also benefit from a foreign tax credit: ‘If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.’
We discussed tax filing but an individual must also report their bank accounts in an FBAR. If you (or your child) had an account of which the aggregate value is over $10.000,- you need to file an FBAR. For more information: What is the FBAR.
This is meant as a helpful guideline but by no means should you take any action based on this advice. We always recommend to consult a tax expert.
We, the founders of Americans Overseas, were born in the Netherlands and obtained our American nationality through our (American) mother.
When we heard about the US tax system for the first time around 2013, we were in total disbelief (it can’t be true!), anger (how can they do this?), fear (am I going to get fined or pick up other problems?), and panic (what should I do?). It is (unfortunately) true that there is an additional American tax levy. But there’s no information from the local government, and when approached, the consulate referred us to the IRS, and the IRS was impenetrable.
That’s why we started this initiative to help people from all over the world by providing proper information about the US tax system to avoid unnecessary panic and offering help free of obligation and free of charge. If needed, we have a network of affordable professionals (accountants) who can help you with your child having to file taxes.