What is the Foreign Tax Credit?
A clear explanation of Form 1116, creditable foreign income taxes, the limitation, and carryover concepts for expats.
The Foreign Tax Credit can reduce U.S. tax on qualifying foreign-source income by allowing a credit for certain foreign income taxes paid or accrued. Form 1116 separates income into categories and applies a limitation, so the result is not automatically a dollar-for-dollar credit against all U.S. tax. Review the current IRS instructions and keep records of the foreign levy, income source, currency, and carryovers.