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New Member
posted Jun 1, 2019 9:59:51 AM

If I pay foreign tax on dividends, why do I pay more in federal tax compared to if no foreign tax was paid?

In box 1a and 1b I have the amount of $1523
The foreign tax paid at box 7 of $401

If I instead enter a zero amount in box 7, the federal tax is $37 less, this seems backwards

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1 Best answer
Level 9
Jun 1, 2019 9:59:51 AM

This could be because of your filing status.  If you are filing with any other status than married filing jointly, you must fill out a Form 1116 to claim a foreign tax credit if the amount of foreign taxes paid is more than $300.  If you don't do so, there is no credit for the foreign tax paid (I'm not quite sure why your tax liability increases when you enter it, but Form 1116 should fix it).  Deductions and Credits/Estimates and Other Taxes Paid/Foreign Taxes.

3 Replies
Level 9
Jun 1, 2019 9:59:51 AM

This could be because of your filing status.  If you are filing with any other status than married filing jointly, you must fill out a Form 1116 to claim a foreign tax credit if the amount of foreign taxes paid is more than $300.  If you don't do so, there is no credit for the foreign tax paid (I'm not quite sure why your tax liability increases when you enter it, but Form 1116 should fix it).  Deductions and Credits/Estimates and Other Taxes Paid/Foreign Taxes.

New Member
Jun 1, 2019 9:59:53 AM

Nice, thanks for the great answer!

Level 9
Jun 1, 2019 9:59:54 AM

Also, I'm assuming you do not have other foreign income that you are trying to exclude on Form 2555.  If so, while my answer is still relevant, there are other issues involved.