Tax Filing Obligations for Children Born Abroad

Introduction

Children born abroad to U.S. citizen parents may acquire U.S. citizenship at birth. Along with citizenship comes the lifelong responsibility of complying with U.S. tax laws, including filing tax returns and disclosing foreign financial assets when required. This article explores the tax filing obligations for such children and what parents must know to stay compliant.

When Does a Child Born Abroad Have to File U.S. Taxes?

• The United States taxes its citizens on worldwide income, regardless of where they live.
• A child born abroad who is a U.S. citizen is subject to the same tax laws as any other citizen.
• Filing is required when income exceeds the standard deduction for dependents. For 2025, this threshold is approximately $14,600 for earned income and $1,300 for unearned income.
• Even if no tax is owed, a return may still be required to report income or claim certain credits.
   

Unearned Income and the "Kiddie Tax"

• Unearned income includes interest, dividends, capital gains, and other investment income.
• If a child under 18 (or under 24 if a full-time student) earns over $2,500 in unearned income, the excess is taxed at the parents' marginal tax rate.
• This is known as the Kiddie Tax, designed to prevent parents from shifting investment income to children to avoid higher tax brackets.
   

Filing Requirements for Foreign Bank Accounts

• If a child has foreign financial accounts with a total value exceeding $10,000 at any time during the year, FBAR filing (FinCEN Form 114) is required.
• In addition, FATCA (Form 8938) may also apply if total foreign assets exceed IRS thresholds
• These filings are mandatory and apply even if the accounts are custodial accounts managed by the parents.
   

Social Security Number (SSN) and ITIN Requirements

• To file a U.S. tax return or be claimed as a dependent, the child must have a Social Security Number (SSN).
• If the child is not eligible for an SSN but has a U.S. tax obligation, an Individual Taxpayer Identification Number (ITIN) must be obtained by filing Form W-7.
   

Claiming Child Tax Credits and Benefits

• U.S. parents may be able to claim the Child Tax Credit (CTC) or Additional Child Tax Credit (ACTC) if the child is a U.S. citizen with an SSN and lives with the parent for more than half the year.
• The Foreign Earned Income Exclusion (Form 2555) may reduce the parent's income, potentially lowering eligibility for these credits.
• Some expat parents may qualify for the Foreign Tax Credit (Form 1116) to offset U.S. taxes paid on foreign income.
   

What Happens If You Don’t File for Your Child?

• Failure to file required tax returns or informational forms can result in penalties, interest, or enforcement actions.
• The IRS has become increasingly strict about foreign account disclosures. Penalties for non-filing FBARs can exceed $10,000 per violation, even for minors.
   

Best Practices for Parents

• Ensure your child obtains an SSN or ITIN as early as possible.
• Track and report all income earned by the child, including from gifts or investments.
• Monitor the value of foreign accounts to determine if FBAR or FATCA applies.
• Work with a qualified tax professional to avoid errors in expat tax filings.
   

Conclusion

Children born abroad to U.S. citizens often face unexpected U.S. tax obligations. Filing requirements can begin at a young age if income or foreign account thresholds are met. Proactive tax planning and accurate reporting are essential to avoid penalties and maintain compliance.

Tax Partners provides specialized assistance to families navigating international tax complexities. From FBAR filings to tax return preparation, our team ensures your child’s U.S. tax responsibilities are fully addressed

This article is written for educational purposes.

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.V