Foreign tax credit for 1099-Div

[dhurandhar]

I am filing MFJ using turbo tax 2025 premier windows software.  I have a 1099-Div from my employer with $2585 dividends and $905 foreign tax paid to Switzerland (where my employer is based).  In the past years, my foreign tax paid was less than $600 and I was able to get a full tax credit for the tax paid to Switzerland.  For example, last year was $555 foreign tax paid to Switzerland and I got full tax credit on my US return.  This year, turbo tax walked me through a bunch of AMT related questions (e.g. first year you are eligible to make the simplified foreign tax limitation election for AMT purposes) and ended up with only $386 in foreign tax credit.  Why is that? Reading some other Q&A, since the foreign tax paid is greater than $600, I have to file Form 1116.  What can I do here to maximize my foreign tax credit?
Thanks!

[DaveF1006]

The IRS will not give you a credit for foreign taxes that are higher than what the U.S. would have charged you on that same money.

1. If the U.S. tax rate on your dividends is 15%, but Switzerland charged you 35%, the IRS says: "We will only cover the first 15% to prevent double taxation. The extra 20% is between you and Switzerland."
2. On your $2,585 in dividends, a 15% U.S. tax rate equals roughly $388. This matches almost exactly the $386 credit TurboTax gave you.
3. In fact, the U.S. has a tax treaty with Switzerland that says U.S. residents should only be charged 15% on dividends.

All is not lost, however. The remainder of your Foreign Tax Credit can be carried back one year and then carried forward for the next ten years to apply to any foreign income you may expect. Also, you may file paperwork with the Swiss government to get back the portion they withheld above the 15% treaty rate.

[pk]

@dhurandhar , Namasteji

Yes, form 1116  while recognizing the full amount of Foreign Taxes paid, computes the allowable  FT as the  lesser of actual paid  AND  that imposed by US on the same doubly taxed  foreign income.  Note that the allocation of  US taxes on this doubly taxed income is based on complicated but standard process. The rest, i..e  unallowed is available for carry back one  year  or forward for usage later ( with foreign source income ).

While others have/ may disagree with me, there is no requirement for you to declare  any/ full amount of  Foreign Tax Paid.    Under the perjury jurat, a lower amount claimed is still true.  Thus , in my personal view ( and absent any case law and/or statute language to the contrary), I am quite comfortable declaring a lower amount  of Foreign Tax paid, if that is of benefit to me. But you are right in that I am splitting hairs here.   I caution you though  that it is your , and your alone, choice.

Is there more I can do for you ?

Namaste Dhurandar ji   ( that is not your real name is it ?)

pk

[dhurandhar]

Thanks, pk, for the quick response!  
Dhurandhar is not my real name 🙂

So if I understand you correctly, my options are:
1) Take the $386 tax credit and carry the remaining ($905 - 386 = $519) to the next year.  Is there anything I need to do now to ensure that turbo tax tracks this for the following year? 
2) Declare $600 foreign income source (MFJ) and claim that full tax credit.  Forget the remaining amount.  But there is some risk involved with this option.

Thanks again!

[pk]

@dhurandhar  that is correct.  The carry ( forward/backward) option is available ONLY when form 1116 is used and use  thereof is quite iffy -- more of an asymptotic recovery at best.

Namaste ji 

[dhurandhar]

Thanks, Dave!  How do I carry it back one year?  Do I need to amend my 2024 return then? I got $555 foreign tax credit.  So technically, I could claim another $45 and still be within $600.  But if this requires complicated paperwork, then may not be worth the effort..  Thanks again!

[DaveF1006]

Yes, you will need to amend your 2024 return to carry it back one year.

@dhurandhar 

[pk]

@dhurandhar , agreeing with the general comments/contents posted by my colleague @DaveF1006 ,  but based on your earlier post that your earlier year Foreign Tax Credit was based on application of  section 904(j), you cannot now go back and claim any carry back to that year -- see -->   26 CFR § 1.904(j)-1 - Certain individuals exempt from foreign tax credit limitation. | Electronic Co...

Specifically see this section -->

"(b) Coordination with carryover rules—(1)No carryovers to or from election year. If the taxpayer elects to apply section 904(j) for any taxable year, then no taxes paid or accrued by the taxpayer during such taxable year maybe deemed paid or accrued under section 904(c) in any other taxable year, and no taxes paid or accrued in any other taxable year may be deemed paid or accrued under section 904(c) in such taxable year."

Please also familiarize yourself with  Pub 514 --> 2025 Publication 514

Is there more one of us can do for you ?