How to Claim Foreign Tax Credits on Your U.S. Tax Return

Introduction

If you paid foreign taxes on income earned outside the U.S., you may be eligible for the Foreign Tax
Credit (FTC), which helps avoid double taxation. Under IRC § 901, taxpayers can claim a dollar-for-
dollar tax credit for foreign income taxes paid, reducing their U.S. tax liability.

This guide explains who qualifies, how to claim the credit, and IRS filing requirements for 2025.

Who Qualifies for the Foreign Tax Credit?

You may qualify if:

•  You paid or accrued foreign income taxes in another country.
•  The tax was imposed on you personally.
•  The tax was legally required by a foreign country.
• The income was subject to U.S. tax on your federal return.

Who Cannot Claim the FTC?

• Taxes paid to a country that the U.S. does not recognize diplomatically.
•  Taxes refunded by the foreign government.
•  Foreign real estate or value-added taxes (VAT).

How Much Foreign Tax Credit Can You Claim?

The FTC is limited to the lesser of:

1. The actual foreign taxes paid OR

2. The amount of U.S. tax liability on the same income

If your foreign tax exceeds your U.S. tax liability, you may carry over unused credits for up to 10
years or carry them back one year.

How to Claim the Foreign Tax Credit

Step 1: Gather Required Documents

• Form 1099-DIV or 1099-INT (for foreign taxes paid on dividends or interest).
•  Foreign tax receipts or statements from employers or banks.

Step 2: Choose Between a Tax Credit or Deduction

•  You can either:
•  Claim the foreign tax credit on Form 1116, OR
•  Deduct foreign taxes on Schedule A (Form 1040) if itemizing.
•  The credit is usually better because it directly reduces tax liability.

Step 3: Complete IRS Forms

•  Form 1040, Line 1 of Schedule 3 – Enter the FTC amount.
•  Form 1116 – Required if foreign taxes exceed $300 (single) or $600 (joint filers).

IRS Forms & Compliance Checklist

•  Form 1040 – Report the credit amount.
•  Form 1116 – Claim the FTC if over $300 ($600 MFJ).
•  Form 1118 – For corporations claiming the FTC.

Conclusion

The Foreign Tax Credit helps reduce double taxation on income earned abroad. By keeping records
of foreign tax payments and filing the correct IRS forms, you can maximize tax savings.

For expert tax assistance, schedule a consultation with Anshul Goyal, CPA EA FCA, a licensed tax
professional and IRS representative.

Frequently Asked Questions (FAQs)

1. Can I claim the Foreign Tax Credit if I take the standard deduction?
Yes, you can claim it whether you itemize or not.

2. Can I carry forward unused foreign tax credits?
Yes, you can carry forward excess credits for up to 10 years.

3. Do I need to file Form 1116 for small foreign tax amounts?
No, if foreign taxes are under $300 (single) or $600 (MFJ), you can claim them directly on
Form 1040.

4. What happens if I have foreign tax carryovers?
Unused credits can be applied to future years' tax returns.

5. Can I claim foreign tax paid on investments?
Yes, foreign tax paid on dividends, interest, or capital gains may qualify.

About Our CPA

Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant and an IRS Enrolled Agent (EA).
He specializes in international tax planning, foreign income reporting, and IRS compliance.

Schedule a consultation today with Anshul Goyal, CPA, to ensure you claim the Foreign Tax Credit
correctly.