Confusion arises when taxpayers receive different deductions or credits depending on the location or national status of their children. The dependency deduction, Child Tax Credit, and Earned Income Tax Credit, all of which relate to the cost of raising children, have different requirements. A child who is not an American citizen or national generally must:
- Reside in the U.S., Canada, or Mexico for the dependency exemption.
- Reside in the U.S. for the Child Tax Credit.
- Reside in the U.S. and have a Social Security number valid for work for the Earned Income Tax Credit.
Taxpayers may fail to claim the correct deductions or credits due to the inconsistency of these requirements. The National Taxpayer Advocate recommends simplifying the three-part children’s national requirements to conform to the overall simplification of family tax benefits.