Child Tax Credit for Israeli-Americans - Why You're Probably Losing $1,700 Per Child

A US citizen living in Israel with a child holding an SSN is eligible to receive up to $1,700 per child from the US, year after year. The refund is called the Additional Child Tax Credit ⁦(ACTC)⁩, and it's part of a total Child Tax Credit of $2,200 per child under the 2025 tax update. Here's the key part: it's a cash refund - you receive it even if you owe no US tax at all. But there's one small detail that causes most Israeli-Americans to lose this entire amount, without ever realizing it.

The trap: FEIE that wipes out your taxable income

Most Israeli-Americans who file a US tax return use FEIE ⁦(Foreign Earned Income Exclusion, Form 2555)⁩ - moving Israeli employment income off the return, up to a ceiling of about $130,000 a year. It's popular because it's simple and it drops the tax liability to zero. But that's exactly where the problem is born: the ACTC formula is 15% × ⁦(earned income minus $2,500)⁩. If FEIE has removed all earned income from the return - earned income for the calculation is zero, and the refund falls to zero right along with it.

Let's put it in numbers

An Israeli-American family, father works in tech with a salary of 400,000 NIS (≈ $110,000), two children with SSNs. If he uses FEIE - calculated income is 0, ACTC is 0, refund is 0. Put another way, he has lost $3,400 in a single year. Spread that across the 10 years of raising the children, and that's $34,000 that could simply have come to him.

The solution: switch to the Foreign Tax Credit ⁦(FTC)⁩

Instead of FEIE, you can use the FTC ⁦(Foreign Tax Credit, Form 1116)⁩. The FTC offsets the tax you already pay in Israel against the US tax - but the income stays on the return. And that's the whole point: earned income for the ACTC calculation is now the actual income, and the refund opens up in full. For most Israeli-Americans, Israeli tax is already higher than what they would owe in the US on the same income - so the FTC offsets the entire liability and, in the same move, unlocks eligibility for the refund.

Who gains most from the switch

• Employed families with one or more children holding SSN
• Annual income below $400,000 ⁦(married couple)⁩ or $200,000 ⁦(single)⁩ - above this the CTC phases out
• Anyone paying higher Israeli tax than they would in the US ⁦(nearly every employee)⁩
• Families with an Israeli spouse - usually MFS ⁦(Married Filing Separately)⁩ beats MFJ

Eligibility conditions

• Child has a valid SSN from the embassy, before the return's filing date ⁦(including extensions)⁩
• US-citizen parent has SSN ⁦(not ITIN)⁩
• Child is under age 17 at end of tax year
• Child lives with you most of the year and qualifies as a dependent

Special case: an Israeli spouse who is not a US citizen

If only one spouse is a US citizen - there are two filing options. The default is MFS: the US spouse files alone, and the Israeli spouse's income never enters the return. The second is MFJ with a §6013⁦(g)⁩ election: the Israeli spouse gets an ITIN and all of the couple's income becomes US-taxable. For most Israeli families MFS is better - it preserves CTC eligibility without exposing the Israeli spouse to US tax.

And backward, too: retroactive refunds

If you've used FEIE in recent years and lost the CTC - you can file an Amended Return ⁦(Form 1040-X)⁩ for up to 3 years back and collect the refunds. For a family with 2 children that's up to $10,200 due to you.

The first step

We work in partnership with licensed US CPAs who specialize in exactly these cases. If you file a US return with FEIE and you have children with SSNs - it's worth a review. We'll go through your specific case and tell you honestly whether switching to FTC is worthwhile, and how much money it may return to you this year and in the years already behind you.