Foreign tax credit and Form 1116
Updated: 2026
If the same foreign-source income is taxed abroad and also included in a U.S. return, the foreign tax credit may reduce double taxation.
What the foreign tax credit is for
The Foreign Tax Credit is intended to reduce the double tax burden when foreign-source income is taxed both abroad and in the United States. Not every foreign payment automatically qualifies for the credit.
The review generally considers the type of foreign tax, who paid or accrued it, what income it relates to, and whether that income is included in the U.S. return.
When Form 1116 is involved
Individuals use Form 1116 to calculate the foreign tax credit in many situations when the simplified exception from filing the form does not apply.
The calculation depends on the category of foreign income, the foreign tax amount, and credit limitations. A statement showing foreign tax withholding may therefore be only one part of the information needed.
What to prepare
Prepare records for the foreign income, the country and type of income, proof of foreign tax paid or withheld, and the foreign tax return if one was filed.
Payment dates and foreign-currency amounts may also be needed. For documents in another language, it helps to have the income type, tax amount, period, and currency clearly identified.
Interaction with other international rules
The foreign tax credit needs to be coordinated with other international tax rules. For example, a credit cannot be claimed for the portion of foreign tax related to income excluded from U.S. tax under the Foreign Earned Income Exclusion.
A foreign tax credit also does not replace a separate review of FBAR or other foreign-account reporting requirements.
What to prepare
A list of documents and supporting records for credits, dependents, mileage, expenses, and foreign items.