US Foreign Tax Credit Calculator (Form 1116)

About the US Foreign Tax Credit Calculator (Form 1116)

Work out the US foreign tax credit for income tax you paid to another country, the way Form 1116 works it out. The credit for each category of income is the smaller of the foreign tax and its limit: your US tax multiplied by the share of your taxable income that comes from abroad in that category. Foreign tax above the limit is not lost: it is carried back 1 year, then forward 10 years (Topic 856).

Enter your taxable income and your US tax before credits, then the foreign-source taxable income and the foreign tax for the general category (wages and business income earned abroad) and the passive category (most interest and dividends), and any carryovers from earlier years. The calculator shows the limit and credit of each category, uses this year's tax before the oldest carryovers, sends the excess back to last year and forward with the last year it can be used, and checks whether you can claim the credit without Form 1116. Nothing you type leaves your browser.

Without a pass the free preview shows your foreign tax credit, in full; a Pro pass opens every figure: each category's limit and working, the carryovers used, the carryback and carryforward schedule, the CSV and printing.

The limit, category by category

Form 1116 works out the limit separately for each category of income (one form each), in Part III (instructions):

• Line 17: your foreign-source taxable income in the category: the gross income less the deductions that belong to it (line 15), after the line 16 adjustments.
• Line 18: your taxable income before it is held at zero (Form 1040 line 11b less line 14) plus the enhanced deduction for seniors (Schedule 1-A line 37), the only Schedule 1-A deduction added back; 0 when the result is 0 or less.
• Line 19: line 17 ÷ line 18, never more than 1, and 0 when line 18 is 0.
• Line 20: your US income tax against which the credit is allowed: Form 1040 line 16 plus Schedule 2 line 1z (the net investment income tax is not part of it).
• Line 21, the limit: line 20 × line 19.

The credit (line 24) is the smaller of the limit and the foreign tax of the category, this year's plus the carryovers to it. A zero or negative line 15 generally gives no credit in that category, and foreign income in a category cannot shelter tax in another.

Which foreign taxes count

Only foreign income taxes (or taxes in lieu of one) that you legally owe count: not an amount the other country would refund (for example tax withheld above a treaty rate), not tax on income you exclude with the foreign earned income or housing exclusion, not taxes of countries the Secretary of State designates as supporting terrorism, and not tax withheld on dividends from stock held for less than 16 days (Topic 856). Convert each tax to US dollars at the rate the Form 1116 instructions give for when it was paid or accrued.

Carrying unused tax back and forward

Foreign tax above a category's limit is carried back 1 year and then forward 10 years, applied to the earliest year first (Form 1116 instructions, line 10). In each year, that year's own foreign taxes use the limit first; carryovers fill what is left, oldest first. A carryback is claimed on an amended return for the earlier year; carryforwards are listed on Schedule B of Form 1116. An amount still unused after its 10th year is lost.

Claiming the credit without Form 1116

You can skip Form 1116 when all of these hold (Form 1116 instructions; Topic 856): all your foreign-source gross income is passive (such as interest and dividends), all of it and its taxes were reported to you on qualified payee statements (Form 1099-DIV, 1099-INT, Schedule K-1 and the like), and your creditable foreign taxes are $300 or less ($600 on a joint return). You then claim the smaller of the foreign tax and your regular tax: no limit applies, but nothing carries to or from that year. The calculator uses it when it gives at least as much as Form 1116.

Credit or deduction

Each year you choose either the credit or an itemized deduction on Schedule A for all your foreign income taxes (Topic 856). The credit reduces your tax dollar for dollar; the deduction only reduces your taxable income, and only if you itemize.

Official sources

• IRS: Instructions for Form 1116, Foreign Tax Credit
• IRS Topic no. 856, Foreign tax credit
• IRS Interactive Tax Assistant: Am I eligible to claim the foreign tax credit?

Limitations

• The general and passive categories only; section 951A, foreign branch, section 901(j), treaty re-sourced income and lump-sum distributions each need a Form 1116 of their own.
• The line 16 adjustments are not made: a loss in one category, a US-source loss and the recapture of earlier losses change the income of the categories and are yours to apply first.
• Qualified dividends and capital gains from abroad may need the rate adjustment of the Form 1116 instructions unless you qualify for its adjustment exception; enter line 15 after any adjustment you make.
• The alternative minimum tax foreign tax credit and the credit of estates and trusts are not worked out.
• An estimate to help you prepare, not tax advice: check the Form 1116 instructions or ask a tax professional before you file.

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