topic Foreign Tax Credit in Deductions & credits

Foreign Tax Credit

dstautz1 — Sun, 01 Mar 2026 20:59:55 GMT

I have $560 of foreign taxes paid on two 1099Divs. I went through the foreign taxes paid section under Deductions and Credits. It asked if this was the only foreign taxes and if I had no foreign tax paid carryovers. I checked both boxes as directed. The next screen told me I did not need to file Form 1116 because I was within the MFJ exemption. All seemed in order until I hit continue and it then told me my foreign tax credit was $199, not the $560.

The Schedule 3, line 1 showed the $199. I went to look at forms and no Form 1116 (Copy1) shows. Therefore I cannot see any calculation of why my credit went from $560 to $199. This section also didn't ask me for the amount of foreign dividends on my 1099Divs. I am at a loss on this at this point. Does anyone have this issue or any suggestions?

Re: Foreign Tax Credit

pk — Sun, 01 Mar 2026 21:14:49 GMT

@dstautz1 while I do not have the details of your situation ( if you could provide more details either here in this thread or PM -- just NO PII -- Personally Identifiable Information), the foreign tax credit is a Non-Refundable Credit. Thus all it can do is to reduce your tax liability i.e. if your tax liability before applying the FT is US$199, then only US$199 of the available credit will be used ( and without form 1116, the rest is lost ). Form 1116 applies a further limit -- it is lesser of actual amount paid and that imposed by the US using an allocation process substantially based on ratio of Foreign source income to World income.

Does this explain your issue ? Is there more I can do for you ?

Re: Foreign Tax Credit

Mike9241 — Mon, 02 Mar 2026 06:27:28 GMT

The option is not to file Form 1116 if the FTC is under $600 MFJ. On the 1099-DIV you enter only the FTC.

You do not complete or file the 1116. If you do, then the $600 exclusion no longer applies. TurboTax will compute what is allowable, which is basically your foreign income as adjusted on the 1116 divided by your taxable income times the tax on 1040 line 16

Re: Foreign Tax Credit

pk — Mon, 02 Mar 2026 19:22:55 GMT

@dstautz1 agreeing with my colleague @Mike9241 on the path forward i.e. try to use the safe harbor ( the non-form 1116 and its limitations ), just wanted to add that TurboTax uses a quite fair but complicated method of US tax allocation between the domestic and the foreign source incomes. It uses the taxable income ratio --- for each income source it allocates the deductions applicable to that income. Thus if you use itemized deduction, Turbo allocates itemized deduction to the world income and to each of the foreign source incomes based on a ratio foreign source income to world income and then uses the resultant "adjusted gross income " for each source to world income AGI ( line 11 of form 1040 ) to allocate the US tax to each income source. It is this tax that is eligible for foreign tax credit ( i.e. the lesser of Foreign tax paid and this allocated US tax ).

I am aware that for most tax payers this detail is immaterial but if one is interested in the actual mechanics of ....