Changes in Social Security Number Requirements for Child Tax Credits
Do you have children living at home?
Do they all have social security numbers?
Maybe you had a baby in 2016 and that social security application is somewhere in your to-do pile. Maybe you are a few years behind in your taxes, but, what's a few more months?
Well, my dear fellow Americans, the IRS has seen our procrastinating ways and is aiming to put a stop to it. Some of the biggest recent tax changes hitting the average American are rules about claiming certain credits, such as the refundable "Additional Child Tax Credit."
1. It is no longer possible to claim a child tax credit retroactively if the child/dependent did not have a social security number by the due date of the tax return, including timely filed extensions.
2. The IRS increased the responsibility of due diligence for the tax preparer/accountant when the client is claiming a refundable credit such as the Additional Child Tax Credit, Earned Income Credit (available to US residents only), and American Opportunity Credit (a credit for undergraduate students).
What does that mean for you?
For most taxpayers who have all their family social security numbers in order, it means you can expect your accountant to ask more questions this year. The annual questionnaire may now be significantly longer, or the preparer may have follow-up questions to satisfy their duty to determine your relationship to the child being claimed as a dependent, the residency of the child, and other questions to assure you are eligible to claim the credit. Accountants are required to document this process. So, even if you've been with the same accountant for years, he or she may request documents or your signature to substantiate information they previously only verbally discussed.
Since at least 2010 the IRS has focused a disproportionate amount of scrutiny on US citizens living in Israel and claiming the Additional Child Tax Credit – and for good reason. Many unscrupulous tax preparers drew in clients with the promise of big refunds. The client would apply for a social security number for each child and immediately file four tax returns to claim their $1000 tax credit per child for the current year and past three years. This alone, was not illegal. However, the preparer often used a US address to fraudulently claim the Earned Income Credit (EIC). (It is not illegal to use a US mailing address if you live outside the country, but the EIC is only available to taxpayers who actually EARN money AND live in the US all year.) The preparer may have also inflated earned income by reporting additional self-employment, ignoring expenses, or calling learning scholarships or kollel (a house of study where men learn full-time) "earned income" in order to reach the minimum income requirements to receive these credits. Many citizens were left worse off. Some did not realize they were required to continue filing a tax return every year, and received letters from the IRS or were excluded from certain voluntary disclosure, or "amnesty" programs. Others were audited years later and owed not only the refund they shouldn't have received, but interest and penalties.
So, now that you have some background, you can understand where the IRS is coming from with these changes. Until now, you could apply for a social security number for each family member and then file or amend tax returns that were up to three years late, as long as they qualified as US citizens by the end of the tax year being reported. Now, in order to claim credits, the social security numbers of dependents listed on your return must have been issued before the due date of the tax return, including extensions.
This change has the biggest impact on US citizens who were relatively unconnected to the US, either because they left the US before they started earning income or having children, or were born to two US citizens outside the US, and may have not even realized they were automatically considered US citizens. Those citizens who are just now realizing that they have a responsibility to file a US tax return are eligible to file three late tax returns through the IRS Streamlined Filing Compliance Procedures, and avoid late filing penalties. However, they will no longer be able to receive refundable credits based on children who didn't have social security numbers by the due date of the given tax year.
What should you do if you don't have Social Security Numbers for all the US citizens in your family?
Individual income tax returns for 2016 are due April 18, 2017 for taxpayers in the US, and June 15, 2017 for taxpayers who reside outside the US on April 18. If you don't expect to have your numbers by that date, make sure your accountant files an extension request with the IRS, giving you until October 16, 2017 to receive the numbers and file.
If you've been waiting to get social security numbers for any of your kids, there's no time like the present!
Getting a number for a new baby is pretty straightforward. The most efficient way to apply for a social security number from Israel is to bring the paperwork with you to the Embassy (Tel Aviv) or Consulate (Jerusalem) when you apply for the Consular Report of Birth Abroad and Passport.
If you have a baby near the end of the year, I recommend you make an appointment as soon as your baby has a name. They will send you more detailed instructions and request documents before issuing your appointment time.
The younger your child is, the easier the process. Once the applicant reaches 12 years of age, more information will be required.
If you (or your child) are over the age of 12 and lost your number, or never had a social security number, you will need to make an appointment with the U.S. Consulate General in Jerusalem. You can find information about the documents and process on their website.
If you do not receive the number after several months, or have other questions, you can email the Consulate Citizen Services at FBU.Jerusalem@ssa.gov.
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