Get your taxes done using TurboTax

It depends. The IRS requires this adjustment to make sure taxpayers don’t get a “double benefit.” Since Qualified Dividends are taxed at lower rates (0%, 15%, or 20%) instead of regular income rates (which can be as high as 37%), you need to reduce the foreign income reported on Form 1116, Line 1a.

You must make this adjustment unless you meet the "Adjustment Exception." You meet the exception (and don't need to adjust) if:

• Your total foreign qualified dividends and capital gains are less than $20,000. 
• AND you fall below certain taxable income thresholds ($191,950 for Single / $383,900 for MFJ in 2025).

If you are below those amounts, TurboTax leaves the box unchecked because the adjustment usually reduces your credit (by lowering the numerator in the credit limit fraction). I would not recommend checking the box unless your foreign qualified dividends are over $20K and your taxable income are over ‌the threshold amounts I have just listed above. 

If it is necessary for you to make the adjustments, follow these instructions, depending on which version of TurboTax you are using.

In TurboTax Desktop (CD/Download):

1. Switch to Forms Mode (click the "Forms" icon in the top right).
2. In the left-hand list of forms, find and click on Form 1116 Wks (the Foreign Tax Credit Worksheet).
3. Scroll down to the Smart Worksheet section located just above Part I.
4. You can manually check the box here. Once checked, TurboTax will use the IRS factors (e.g., 0.4054 for the 15% rate or 0.5405 for the 20% rate) to recalculate Line 1a. 

If using TurboTax Online.

1. Go to Federal > Deductions & Credits > Estimates and Other Taxes Paid > Foreign Tax Credit.
2. When you reach the screen titled "Any Foreign Source Qualified Dividends or LT Cap Gains?", you must select Yes.
3. TurboTax will then ask you for the specific amount of qualified dividends for each country. If your income exceeds the IRS thresholds mentioned above, it will apply the factors automatically behind the scenes.

In both versions, the adjustment factors are performed in the program so you don't need to manually record these in your return. 

Again, let me emphasize, do not check the box if you meet the adjustment exemptions I mentioned earlier. If you do, you will receive a smaller foreign tax credit and that shouldn't be your goal.

@aptiva4tt17