Why a US Expat Family in London Got a $3,400 Check from the IRS Instead of a Tax Bill

The “Tax Bill” Dread

When Mark and Sarah moved from Chicago to a leafy corner of Richmond, London, they were braced for the “expat tax.” They’d heard the horror stories: the double taxation, the expensive accounting fees, and the general headache of keeping Uncle Sam happy while living 4,000 miles away. As 2026 rolled around, they sat down to handle their 2025 tax year return with a sense of grim resignation. They were hoping, at best, to owe $0.

They were wrong. By the time they finished, they weren’t sending a check to the IRS. They were waiting for one.

It sounds a bit like a gimmick, doesn’t it? The idea that the IRS would actually pay a high-earning professional living in a foreign country. But for American families in high-tax jurisdictions like the UK, this isn’t just possible, it’s actually quite common, provided you know which lever to pull.

The Mechanism: FTC vs. FEIE

The mistake Mark and Sarah almost made was choosing the path of least resistance: the Foreign Earned Income Exclusion (FEIE). Most expats default to this because it sounds simple. You “exclude” up to $130,000 of your London salary (for the 2025 tax year), and it essentially disappears from your US return. Easy, right?

The problem is that the Exclusion is a bit of a “nuclear option.” When you exclude your income, it’s gone. You can’t use it to qualify for certain credits.

Instead, Mark and Sarah pivoted. They used the Foreign Tax Credit (FTC). Because UK tax rates are generally higher than US rates, they used the taxes they already paid to HMRC to “wipe out” their US tax liability. It’s a dollar-for-dollar credit. But here is the clever bit: because they didn’t exclude their income, that income remained “visible” on their US return. And because it was visible, they suddenly qualified for the Child Tax Credit (CTC).

For the 2025 tax year, the rules for families abroad are particularly interesting. The credit is $2,200 per qualifying child. While part of that is used to offset tax, up to $1,700 per child is what the IRS calls “refundable.” This means if you owe zero tax, as Mark and Sarah did thanks to their UK tax credits, the IRS simply cuts you a check for the difference, that’s real money right there.

The 2025 Payday

With two primary-school-aged kids, Mark and Sarah were eligible for a $3,400 USD refund.

Think about that for a second. That’s roughly £2,600. It’s a family holiday to the Algarve. It’s a significant dent in the school fees. It’s a “thank you” from the US Treasury that most expats simply leave on the table because they’re too afraid to look at their filing obligations.

Of course, it isn’t quite as simple as clicking a button. There are hurdles. To claim the credit, your children must have US Social Security Numbers. You also have to navigate the “stacking rule,” which ensures that any income above the excluded amount is taxed at the higher bracket it would have occupied otherwise. It’s a bit of a bureaucratic dance, honestly, and it requires precise record-keeping between the UK’s April-to-April year and the US calendar year.

The “Catch” and the Compliance Bonus

Beyond the money, the process gave Mark and Sarah something more valuable: total compliance. By filing to get their refund, they also submitted their FBARs and reported their UK bank accounts, moving from a state of “unintentional non-compliance” to being completely current with the law. 

They went from fearing the IRS to essentially having the IRS subsidize their London lifestyle.

Is Your Expat Status Costing You a Refund?

It’s a bizarre situation to be in, feeling like the tax code actually worked in your favor for once. But that’s the reality for many US citizens in the UK. You just have to move past the dread of filing to see the opportunity underneath.

If you’ve been avoiding your US tax return because you’re afraid of the bill, you might be surprised to find that silence is actually costing you money. Understanding how to maximize these “hidden” credits while staying on the right side of the law is a delicate balance, but it’s one that pays off. Expat Tax Online has developed a free beginner guide to filing US taxes in the UK specifically to help you uncover these refunds and manage the unique complexities of life in Britain.

Why not grab the guide today? You might just find that your 2025 tax return is a lot more rewarding than you expected.