Exemption for Children & SSN Requirements

by Dean Paley on September 29, 2014

Over the last several months we have seen a number of U.S. Citizens in Canada receive a letter from the IRS asking for the social security number of their children in order to claim the exemption for children. In more than a few cases, the taxpayer did not obtain social security numbers for the children or the child does not qualify for U.S. citizenship. This leave the taxpayer with the potential prospect of having to repay the IRS and amend their Canadian tax returns.

If you find yourself in this situation, you may be able to avoid the mess with a simple amendment.

Do My Children Qualify for a SSN?

The concept of citizenship is a legal matter and not one that we can provide specific advice on. The following is limited to the context of Americans living in Canada but should not be relied on as advice.

If both parents of the children are U.S. citizens, then generally the child is a U.S. citizen. If only one of the parents is a U.S. citizen, then the U.S. citizen parent must have resided in the U.S. in the five years prior to the child birth in order for the child to qualify for citizenship. Please confirm the requirements with the U.S. Consulate as they relate to your specific case.

Claiming The Exemption For Children

The basic exemption for children can only be claimed on the 1040 income tax return if the child has a social security number. If the child qualifies for citizenship, then the application for the social security number should be undertaken. If no social security number is not provided, then the exemption cannot be claimed.

Adjusted 1040

If you have claimed the exemption but did not provide the child’s social security number, then the exemption may be denied. However, you can file an amendment to your return using form 1040X and increase or adjust your foreign earned income exemption and (or) the foreign tax credit to offset the reduction in the exemption for children. In most cases, such an amendment is more to eliminate any amounts owing to the IRS.

Final Thoughts

There are a number of additional filings that you may be required to file, including the foreign bank account reporting (FBAR), the deferral for Canadian registered plans (RRSP, RRIF, and pensions) or specified foreign financial assets. If you believe you may have inadvertently failed to file some or all of the required disclosure, please give our office a call and we can discuss the best course of action in your case.

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