BUG: Increasing foreign tax paid can suddenly decrease refund

[george-472838]

Hi,

There seems to be a bug with how foreign tax paid (box 7) are processed in the Windows version of TurboTax Deluxe 2021. Here is an example:

• Box 1a and 1b: 5000, Box 7: 0, refund: $609.
• Box 1a and 1b: 5000, Box 6: 0, Box 7: 500, refund: $1109.
• Box 1a and 1b: 5000, Box 6: 0, Box 7: 565, refund: $1174.
• Box 1a and 1b: 5000, Box 6: 0, Box 7: 566, refund: $1175.
• Box 1a and 1b: 5000, Box 6: 0, Box 7: 567, refund: $575.
• Box 1a and 1b: 5000, Box 6: 0, Box 7: 600, refund: $575.

I would understand if the refund reached a plateau as the foreign tax paid increases, but this sudden decrease doesn't make sense. How can I open a bug with TurboTax?

Thanks.

[ThomasM125 · Accepted solution]

You may need to do your updates to the program if the calculation is not working correctly. The refund should revert to the original amount once you enter over $600 in foreign tax (if filing married-joint) as then the deduction would not be automatic and require form 1116 to be completed in order to get the foreign tax credit.

You would have to contact TurboTax so an agent could look at your return with you to report a problem with the program. Here is how you can contact TurboTax:

Contact TurboTax

[Mike9241]

box 1a and 1b are not used in the FTC calculation. 

box 6 is for investment expenses that aren't even deductible anymore.

what seems to be missing if the FTC is over the limit is form 1116 along with that you need to specify the amount of foreign dividends included in box 1 on line 7d and the country in box 8. without 7d you have no foreign income and get no FTC.

you may also have to complete the questions for the alternative minimum tax foreign tax credit

I admit the last 2 examples do not make sense except if AMT is involved (form 6251).

[george-472838]

@ThomasM125 Thanks for the reply. I did the program update when I found the problem. But the form 1116 could be the reason. Can I complete the form 1116 in TurboTax, and if so how?

[george-472838]

@ThomasM125 and @Mike9241 Filling out the form 1116 in the menu View, item Forms seems to indeed avoid the problem.

But I would have excepted TurboTax to tell me to fill out that form, not unilaterally ignore the foreign tax paid without saying anything.

[george-472838]

@Mike9241 I now believe that the last two examples make sense because I also have a US mutual fund with a $33 foreign tax paid. The foreign tax paid in the example plus the foreign tax paid by the US mutual fund makes the total reach the $600 limit.

That doesn't fix the bug that TurboTax silently drops the foreign tax paid when it reaches the limit instead of giving a notification that form 1116 MUST be completed.

[george-472838]

It turns out that there is a much easier way than trying to fill out the form 1116 directly: go to tab "Deductions and Credits", under section "Estimates and Other Taxes Paid", click the button "Start" for the line "Foreign Taxes". Follow the wizard, making sure to click the button "Take a Credit" when choosing between itemized deduction or credit. It continues with a wizard for the form 1116.