Foreign tax credit for Canadian RSUs on TurboTax reduces the federal due only by 50%

[zakerinasab]

Hi all,
I moved from Canada to the US back in 2022 and this is my first year reporting my US tax with TurboTax. After filling form 1116 on TurboTax, I only see ~50% of the paid Canadian taxes applied to the federal due. My understanding is that this should be 100%. FWIW, my foreign income was due to some vested stocks. The related income is already reported in my 2023 W2.

The way I did this was going through the foreign tax credit option. The first question was to select between foreign tax from income earned while working in another country, carryover or none. I went with the first option, as the third one results in ineligibility.

Next it moves forward to choosing the income type, which includes. among others, income re-sourced by treaty, foreign branch category income, and general category income. I understand the correct option here is foreign branch. Next goes to other gross income - Canada, where I enter the T4 amount in USD and then the taxes paid in USD, no expenses, adjustments, losses, AMT, etc. When everything is done, the federal due is only reduced by $14,695 based on $29560 of tax paid to Canada. I wonder if there is anything I'm missing in this process.

[AmyC]

The amount of the tax credit is the lower of the taxes (US vs Canada) on the income. I assume the US tax on the income is $14,695 so you are getting the entire tax removed. Double check by looking at page 2 of the form 1116 for the calculations. Note, line 24 says smaller of ...

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[pk]

@zakerinasab , agreeing with my colleague @AmyC  for things you need to check. At the same time there is one more item you should be aware of when using form 1116.  While form 1116 recognizes  your foreign  tax dollar for dollar, the allowable amount for the tax year depends  effectively on a ratio of your foreign income to yopur world income.  Your figure being approx. 50% leads me to believe that  your foreign income was in the range of 40-50% of world income.

Does this make sense ?

pk

[zakerinasab]

Yes, thank you. I believe the numbers calculated by TT are correct.