How do UK and US tax residency rules differ for expatriates?

The UK uses the Statutory Residence Test (SRT) to determine tax residency, considering factors like days spent in the UK and connections such as employment or property ownership. The US, however, operates on a citizenship-based taxation system, requiring US citizens and green card holders to file taxes regardless of where they live. Non-citizens may also be subject to US taxes under the 'substantial presence test.'

What are the tax filing obligations for expatriates in the UK and US?

In the UK, tax residents must file a Self-Assessment tax return for income not taxed at source, with a deadline of January 31. In the US, citizens and residents must file an annual tax return reporting worldwide income, with a standard deadline of April 15. Expatriates receive an automatic extension to June 15, with the option to request further extensions.

How can expatriates avoid double taxation between the UK and US?

Expatriates can avoid double taxation by leveraging the UK-US tax treaty, which outlines taxing rights for specific income types. Additionally, US taxpayers can claim Foreign Tax Credits (FTC) for taxes paid to the UK and may qualify for the Foreign Earned Income Exclusion (FEIE), which allows them to exclude up to $130,000 (2025 figure) of foreign-earned income.

What are the social security considerations for UK-US expatriates?

The UK and US have a Totalization Agreement to prevent double social security contributions. This agreement ensures expatriates pay into only one system and can receive benefits based on contributions made to either country.

What are the reporting requirements for foreign assets in the UK and US?

In the US, taxpayers with foreign financial accounts exceeding $10,000 must file a Foreign Bank Account Report (FBAR) and comply with FATCA requirements. In the UK, residents must disclose foreign income and gains, with penalties for non-compliance.

What are the key takeaways for expatriates navigating UK and US tax laws?

Expatriates should: 1) Understand their residency status in both countries, 2) Leverage tax treaties and credits to avoid double taxation, 3) Stay compliant with reporting requirements like FBAR and FATCA, and 4) Seek professional advice to navigate the complexities of cross-border taxation.

When Does My US Citizen Child Need to File with IRS?

Harrison Swift

September 25, 2025

Tax

Raising a US citizen child comes with more than just daily responsibilities it may also come with tax obligations. Whether your child lives in the US or abroad, they could be required to file with the IRS under a variety of conditions.

Here’s what you need to know, including income thresholds, kiddie tax rules, and foreign asset reporting.

Income Thresholds: When a Child Must File

Your child may need to file a tax return depending on how much income they earn.

As of 2025:

Earned income (like wages): Must file if over $15,000

Unearned income (like dividends or interest): Must file if over $1,350

Combined income: Must file if gross income exceeds the larger of:

$1,350, or

Earned income + $450

Understanding the Kiddie Tax

If your child has unearned income, the kiddie tax might apply. This means part of their income will be taxed at the parent’s rate.

It applies to children who are:

Under 18

18 and did not support themselves

19–23 and a full-time student, not supporting themselves

Kiddie tax thresholds (2025):

First $1,350: Tax-free

Next $1,350: Taxed at child’s rate

Over $2,700: Taxed at parent’s rate

This commonly affects children receiving interest, dividends, capital gains, or trust income.

Foreign Trusts and Gifts

If your child is a beneficiary of a foreign trust or receives a foreign gift, they may need to file special forms:

Form 3520: Required for foreign trust distributions or gifts from non-US persons

Form 3520-A: Required if the child is considered the “owner” of a foreign trust (usually the trustee files this, but the child may need to ensure it’s filed)

These forms carry heavy penalties if not submitted, even if no tax is due.

FBAR (Foreign Bank Accounts)

If your US citizen child has foreign financial accounts exceeding $10,000 at any point in the year, they must file the FBAR (FinCEN Form 114).

This includes:

Bank accounts

Investment accounts

Custodial or joint accounts

Note: No tax is due with FBAR — it’s a disclosure requirement. But failing to file can result in severe penalties.

PFICs: Foreign Mutual Funds and Investment Traps for US Children

One of the most overlooked and misunderstood tax issues facing US citizen children living abroad—especially in countries like the UK—is the PFIC regime.

PFIC stands for Passive Foreign Investment Company. This includes:

Foreign mutual funds

Foreign ETFs

Certain non-US money market or bond funds

Foreign insurance wrappers with investment components (e.g., bonds or savings policies)

From the IRS’s perspective, these are “black-box” investments. Even if they are perfectly ordinary in your home country, the IRS treats them as complex, opaque vehicles that require special reporting and are subject to punitive tax treatment.

A Common UK Example: Junior ISAs and Child Trust Funds

Many US citizen children in the UK have investments held in Child Trust Funds (CTFs) or Junior ISAs. These are popular UK savings accounts designed to help parents save for their children’s future, with tax-free growth in the UK.

But here’s the catch:

These accounts are often invested in UK or EU mutual funds (like from Vanguard, Fidelity, etc.)

To the IRS, those funds are considered PFICs

The child may need to file Form 8621 every year — one for each fund held, regardless of whether there are any gains or income

Even worse, if you don’t make a timely election (like the QEF or mark-to-market election), the IRS will tax any distributions or sales at the highest possible tax rate (currently up to 37%) plus interest, calculated as if the gain had accrued evenly since the date of purchase.

This means that something as innocent as a UK government-promoted savings account could generate complex and costly US tax reporting requirements for your child — even when no money has been withdrawn.

The Compliance Burden

Form 8621 is required even if:

No distributions were made
No gains were realized
No US tax is due

Each PFIC holding requires a separate Form 8621 — this can quickly become overwhelming

Many tax software programs do not support Form 8621, and many tax professionals charge extra for PFIC compliance

What Can Parents Do?

Avoid PFICs when possible: If you’re setting up savings or investment accounts for your US citizen child abroad, consider holding individual stocks, or US-domiciled funds instead (e.g., through a US brokerage that allows minors or custodial accounts).
Review existing accounts: Check the investments inside your child’s Junior ISA or CTF. If they’re mutual funds, PFIC reporting may apply.
Get professional advice: Don’t try to guess your way through PFIC rules. Work with a US tax preparer familiar with expat and child filing requirements.

Other Reasons to File (Even If Not Required)

Even if your child’s income is below the thresholds, filing may be beneficial if:

Tax was withheld and you want to claim a refund

Your child has self-employment income over $400

You want to start a filing history (useful for ID verification, college, or future loans)

Who Signs the Return?

If your child is under 18, a parent or guardian signs the tax return.

Use your name followed by “for minor child”

Some forms may need to be filed on paper rather than electronically

Summary: When Your Child May Need to File

Your child may be required to file a US tax return if they:

Earned over $15,000 (earned income)

Received over $1,350 in interest, dividends, or investment income

Are subject to kiddie tax due to higher unearned income

Have foreign accounts over $10,000 (FBAR)

Receive distributions from a foreign trust (Form 3520)

Hold foreign mutual funds or insurance bonds (Form 8621)

Had any tax withheld and want a refund

Final Thoughts

Children don’t need to be adults to get taxed like one. Especially in international families, children with foreign bank accounts, trust interests, or investment income may face complex reporting obligations.

To avoid penalties and ensure proper compliance, it’s wise to speak with a tax advisor who understands US international tax rules for minors.

Legal Disclaimer

This blog post is for informational purposes only and does not constitute legal, tax, or financial advice. Every individual’s situation is unique. Please consult a qualified tax professional or attorney before making decisions or taking action based on this information. No client relationship is formed by reading this content.

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When Does My US Citizen Child Need to File with IRS?

Income Thresholds: When a Child Must File