Foreign Tax credit

[Douglas Carr]

How does when get credit for foreign taxes paid

[Gabriella_EA]

Hi @Douglas Carr - thanks for your question!

This article walks you through the steps for claiming the Foreign Tax Credit in TurboTax.

Below is some information on eligibility for the foreign tax credit.

Taxes paid to other countries qualify for the FTC when:

• You paid the tax on your income to a local or provincial government.
• You were legally obligated to pay the tax
• You have already paid or accrued the tax.
• You did not gain from paying the tax.

There are also some taxes that cannot be included in the FTC:

• Taxes on income excluded from your U.S. gross income (If you do not include wages earned in another country as part of your U.S. income, you cannot claim a credit for foreign taxes paid on those wages)
• Taxes paid to a sanctioned country
• Sales tax, value-added tax, real estate taxes, or luxury taxes paid to a foreign government
• Taxes on foreign mineral, oil, and gas income
• Taxes from international boycott operations
• Taxes related to a foreign tax splitting event
• Social Security taxes paid or accrued to a foreign country with which the U.S. has a Social Security agreement

If you'd like to read more about this topic, you can check out our super helpful article here.

[Ruth C-L]

To add to the great response, there is a limit on the amount of the credit that you can claim for a particular tax year. Your foreign tax credit is the amount of foreign tax you paid or accrued or, if smaller, the foreign tax credit limit.

The foreign tax credit limit provides that your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. If you have foreign taxes available for credit but you cannot use them because of the foreign tax credit limit, you may be able to carry them back to the previous tax year and forward to the next 10 tax years.