Child Tax Credit, dependent care FSA and 529 plans for NRI families

For a family with children, three US tax benefits do most of the work: the Child Tax Credit, the dependent care FSA and credit, and 529 savings plans. All three have conditions that catch NRI families, usually because of a number, or because a child spends a long time in India.

Child Tax Credit

The credit is $2,200 per qualifying child for tax year 2025. It starts to fall for modified adjusted gross income above $200,000, or $400,000 on a joint return. The main tests are:

• The child is under 17 at the end of the year.
• The child has a Social Security number valid for employment, and so does at least one parent.
• The child is a US citizen, national or resident alien.
• The child lived with you for more than half the year, counting temporary absences.
• You provided more than half of the child's support, and you claim the child as a dependent.

Two points matter for NRI families. First, an ITIN is not enough. A child with only an ITIN generally gets the smaller credit for other dependents, and the SSN article explains how to get the right number first. Second, a child who spends most of the year in India with grandparents may fail the residence test even if the child is a US citizen. A year-long stay is not a temporary absence. If your child is in India for long stretches, work out the days before you claim.

Dependent care FSA and the care credit

A dependent care FSA lets you pay for care of a child under 13 from pre-tax salary, so that you can work. The annual limit was $5,000 per household. From 2026 the limit rises to $7,500 under the 2025 tax law, but only if your employer's plan has been amended to allow it, so check your own plan documents.

The separate child and dependent care credit (Form 2441) applies a percentage to expenses of up to $3,000 for one child or $6,000 for two or more. You cannot count the same expenses for both the FSA and the credit. Expenses paid with FSA money reduce the amount available for the credit.

Care paid for in India can be a qualifying expense where the other tests are met, but you need the provider's details and receipts. Informal arrangements with relatives are the most common place where the claim falls apart for lack of documents.

529 plans

A 529 plan is a savings account where contributions are made after tax, growth is tax-free, and withdrawals are tax-free for qualified education expenses. There is no federal deduction for the contribution, but many states give a deduction or credit for residents.

Points to check:

• Where the child will study. Qualified expenses are those at an eligible educational institution. Some foreign universities are eligible, but do not assume that an Indian college is. Check before relying on a 529 to pay for study in India.
• Money from grandparents in India. A large gift from a relative abroad to a US person may need to be reported on Form 3520 if the total from foreign individuals passes $100,000 in a year. See family money from India.
• State rules. Whether your state gives a deduction, and whether the deduction is lost if the money is used outside the state, varies by plan.

Education credits, such as the American Opportunity Credit, are a separate benefit and also depend on tax identification numbers. Publication 970 covers them.

A checklist for families

1. Confirm every child has an SSN before filing, not after.
2. Count the child's days in the US and in India for the year.
3. Check whether your employer's FSA limit changed for 2026.
4. Keep receipts and provider details for all care costs.
5. Choose a 529 plan by the state deduction and the fees, and decide whether study abroad is plausible.

Credits for children are lost most often through a missing number or a missed day count, not through a misreading of the rate.