Foreign Tax credit is double what I expected

[jimm-wisc]

I seem to be having a problem with TurboTax Premiere 2025 (Desktop) with respect to Foreign Tax credit. (Sorry for the length of this post, but I wanted to explain all my steps.)

I have imported the Tax Statement from my E*Trade account. The imported 1099-DIV includes $112 on line 7 for Foreign Tax Paid.

In EasyStep, I chose the two foreign countries (Finland and Germany) for which I paid foreign tax and was able to enter the taxable qualified dividend amount for one of the countries, However, I couldn’t figure out how to add in the amount for the second country. After looping back and forth a couple of times, I finally thought I had enter the dividends for both countries.

At the end of the EasyStep process for Foreign Tax, TurboTax reported that my foreign tax credit was $224. However, the total Foreign Tax that I paid was $112. Yet TurboTax had calculated a credit of twice that amount.

I went to the Forms and looked at the Foreign Tax Computation Worksheet. Line g column A showed Germany with the correct dividend amount of $421. Finland was not listed in column B so I manually entered the country name and the dividend of $3.

The remainder of the worksheet was auto-populated. Strangely, the $3 for Finland was shown in the g row (Ordinary Income) and not in the h row (Qual. Dividends and LT Capital Gains) where the $421 from Germany was listed.

In the Foreign Tax Computation Worksheet in Part II - Foreign Taxes Paid/Accrued, Line 8, the correct amount of taxes are listed for Country A at $111 and Country B at $1.

Appropriately, in the Worksheet, there are no Carryovers listed, from prior years. It does show, however, the $112 in the 2025 row for both Regular Tax and Alternative Minimum Tax.

I then chose QuickZoom to look at Form 1116.

In Form 1116, the $424 foreign dividend total appears in line 1a. The $112 foreign tax total appears in line 8 and 14.

However, there is nothing in line 33 or 34.

Line 35, “Subtract line 34 from line 35. This is your foreign tax credit.” shows $224.

Where did the $224 come  from if line 35 is calculated as line 33 minus line 34, i.e. 0 - 0?

Last year, my foreign tax situation was similar and my foreign tax credit matched the amount of foreign tax that I paid. Why is the tax credit twice the amount paid for 2025?

(BTW, I finished all my federal entries and ran the error check and no error was detected.)

Assuming the foreign tax credit should equal the amount of foreign tax paid, how do I fix this in TurboTax?

[pk]

@jimm-wisc , 

what does line 27  ( passive category ) say ?  line 24 ?  Line 9 through computes the credit  available.

The easiest solution may be  -- (a) in the forms mode delete the  form 1116 which should delete the  1116 comp.wks.  Then go back to the 1099-DIV  entries in the  easy-step (or step-by-step) and make sure everything is correct.   Then  go to  Foreign tax credit section and go through the whole thing all over again.

OR   (b)  make all the corrections on the 1116 Comp wks. to get the  correct credit.

I am also surprised that  ( and assuming that  your world income is much larger than  foreign source income ) how are you getting  the full FTC amount.  Why is not the  Foreign Source taxable income  to World Taxable income ratio not being applied ?

Or for that matter if  your ONLY foreign source  income is 1099-DIV and your FT is US$112, why you have form 1116 and not the safe harbor  path ( i.e. without using form 1116 ).

I must be missing something here .

Look forward to hearing from you --yes ?

[jimm-wisc]

@pk,

Thanks for your response. Before I start trying to change my TurboTax forms, I’d like to address your last point.

Yes, my only source of foreign income was from the two stocks, yielding a total dividend of $242 and foreign tax of $112.

Form 116, line 35, has the addendum “DO NOT FILE FORM. (SEE HELP)” that was “typed in” by TurboTax. TurboTax did perform calculations on Form 1116 and shows $56 on both lines 24 and 27.

I’m not quite sure what you mean by “the safe harbor path.”

Are you referring to this (from https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-how-to-figure-the-credit)

==

Exemption from the Foreign Tax Credit limit

You will not be subject to the foreign tax credit limit and will be able to claim the foreign tax credit without using Form 1116 if the following requirements are met.

1. Your only foreign source gross income for the tax year is passive income, as defined in Publication 514 under Separate Limit Income.

2. Your qualified foreign taxes for the tax year are not more than $300 ($600 if filing a joint return).

3. All of your gross foreign income and the foreign taxes are reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT).

4. You elect this procedure for the tax year.

==

I believe that I do indeed qualify for the above “Exemption from the Foreign Tax Credit limit.” Is this what you refer to as “the safe harbor path?”

The only thing I can think of is that I incorrectly answered a question from TurboTax when I started the Foreign Tax Credit EasyStep section which caused TurboTax to use Form 1116.

[pk]

@jimm-wisc , yes my "safe harbor path" is  the " exemption from Foreign Tax  Credit Limit" you ref'd in your post.   Since you do qualify for this than the  form 1116 does not need to be used.

Glad you found your solution.

Is there more I can do for you ?

[waynehend]

I don't have a solution to your problem but I can tell you that I also had to manually adjust the data appearing on Form 1116.  I had dividends and paid tax in two countries (one is actually RIC).  TurboTax did not divvy up the dividends and taxes properly to the two countries.

There is another problem you might watch for:  Line 3f and 19 result in small numbers that TurboTax rounds (or truncates) to just a single significant figure.  A lack of more precision can cause fairly large errors in the calculated results that follow.  In my case my foreign tax credit is under-calculated by over 5%.

[jimm-wisc]

Thanks for your reply.

Yes, TurboTax did not automatically enter the two countries and amounts for my foreign dividends and tax via EasyStep. Furthermore, when I tried to enter the info manually on the 1116 worksheet, it screwed up the info as I noted above.

So, as previously suggested, I deleted the 1116 worksheet, which also deleted Form 1116. Then I checked Schedule 3 and the correct amount for the Foreign Tax Credit was present on line 1 and line 8. I assume this was auto-entered via the import of my E*Trade 1099-DIV.

It seems to me that TurboTax has a bug relative to calculating Foreign Tax credit. Is anyone from TurboTax reading these Community topics? If so, why no comment on this? If not, how does one report TurboTax bugs?