The adjustment on Line 1k of the Foreign Tax Credit (Form 1116) Computation Worksheet still applies, even if your income falls in the 12% tax bracket instead of the 37% bracket.
This adjustment helps treat foreign income taxed at lower U.S. rates (0%, 15%, or 20%) the same as ordinary income taxed at higher rates.
My question to you is whether you really need to make this adjustment. The IRS allows you to skip the Line 1k adjustment (meaning you get to keep the full value of your foreign income in the calculation) if you meet both of these criteria:
- Your total foreign source capital gains and qualified dividends are less than $20,000.
- You are below a certain taxable income threshold (for 2025/2026, this is roughly $191,950 for Single filers or $383,900 for Married Filing Jointly)
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