Foreign Tax Credit Limit Calculator
The foreign tax credit lets you offset U.S. tax with income taxes paid to another country, but the credit is capped at the share of your U.S. tax attributable to foreign-source income. Form 1116 computes that limit as your U.S. tax times foreign-source taxable income divided by total taxable income. This calculator finds your credit limit, your allowed credit (the lesser of foreign taxes paid or the limit), and the carryover of any excess foreign taxes you can use in other years.
Foreign tax credit formula
Ratio = foreign-source taxable income / total taxable income
Credit limit = U.S. tax before credit * ratio
Allowed credit = min(foreign taxes paid, credit limit)
Carryover = max(0, foreign taxes paid - credit limit)
The limit ensures the credit offsets only U.S. tax on foreign income. Foreign taxes above the limit carry back 1 year and forward up to 10 years.
Foreign tax credit context
- The credit is computed on Form 1116 for most individual taxpayers.
- The limit equals U.S. tax times the foreign-source income ratio.
- Excess foreign taxes carry back 1 year and forward up to 10 years.
- Separate limits apply by income category (such as passive and general).
- A small-amount election may allow claiming the credit without Form 1116.
Foreign tax credit: frequently asked questions
What is the foreign tax credit limit?
The foreign tax credit cannot exceed the portion of your U.S. tax that is attributable to your foreign-source income. Form 1116 computes this limit as your U.S. tax before the credit multiplied by the ratio of foreign-source taxable income to total taxable income. The allowed credit is the smaller of the foreign taxes paid or this limit.
How is the limit calculated?
Multiply your U.S. income tax (before the credit) by your foreign-source taxable income divided by your total taxable income. For example, if U.S. tax is $20,000 and foreign income is 25 percent of total taxable income, the limit is $5,000. You can credit foreign taxes only up to that limit.
What happens to foreign taxes above the limit?
Foreign taxes you paid that exceed the limit are not lost. They can generally be carried back 1 year and carried forward up to 10 years to offset U.S. tax on foreign income in those years. This calculator shows the carryover amount as the excess of foreign taxes paid over the allowed credit.
Do I have to use Form 1116?
Most taxpayers claiming the credit file Form 1116, but if your total foreign taxes are below a small threshold and meet certain conditions, you may claim the credit directly without the form. Check the Form 1116 instructions for the current election threshold and eligibility rules.
Is the foreign tax credit better than a deduction?
Usually yes. A credit reduces your U.S. tax dollar-for-dollar, while a deduction only reduces taxable income. You generally must choose one or the other for all foreign taxes in a year. The credit is typically more valuable, but compare both for your situation.
Official sources
- U.S. Internal Revenue Service: About Form 1116, Foreign Tax Credit.
- U.S. Internal Revenue Service: Foreign Tax Credit (Topic 856).
Reviewed by the CalculatorHub team, edited by James Graham, 17 June 2026. See our methodology.