Foreign Tax Credit Calculator
US citizens and resident aliens who pay or accrue income taxes to a foreign country or US possession can generally claim those taxes as a dollar-for-dollar credit against their US federal income tax liability using Form 1116. The foreign tax credit directly reduces the US tax you owe, making it significantly more valuable than an equivalent deduction. However, the credit is subject to a per-basket limitation to prevent it from offsetting US tax on US-source income: the allowable credit cannot exceed the portion of total US tax attributable to foreign-source income in each income basket. The limitation formula is: US tax multiplied by foreign income divided by total worldwide income. If foreign taxes paid exceed the limitation, the excess is carried back one year and carried forward up to 10 years. In any year you have both a current-year FTC and a carryforward, the current-year credit applies first. An alternative to the credit is to deduct foreign taxes on Schedule A as an itemized deduction, which is simpler but generally less beneficial for most taxpayers. This calculator computes the FTC limitation based on your foreign income, total income, and US tax liability; determines how much of your foreign taxes are creditable in the current year; identifies any excess credit carryforward; and shows your US tax after applying the credit, including any available carryforward amounts.
With foreign income of $35,000, total worldwide income of $120,000, and foreign taxes paid of $8,000, your FTC limitation is --.
How the foreign tax credit is calculated
The Foreign Tax Credit offsets US tax liability on foreign source income by allowing a dollar-for-dollar credit for qualifying foreign income taxes paid. However, the credit is limited to ensure you do not receive a credit larger than your US tax on worldwide income.
The FTC limitation is calculated as:
limitation = US total tax * (foreign source income / total worldwide income)
creditable amount = min(foreign taxes paid, limitation)
excess credit = foreign taxes paid - creditable amount
You can claim the creditable amount as a direct reduction to your US tax. Any excess credit can be carried back one year (file an amended return) or forward ten years (apply on future returns). This carryover mechanism helps when income or tax rates fluctuate from year to year.
Worked example
Foreign income $35,000, worldwide income $120,000, US tax $22,000, foreign taxes $8,000:
- Limitation = 22,000 * (35,000 / 120,000) = 22,000 * 0.2917 = $6,417
- Creditable amount = min(8,000, 6,417) = $6,417
- Excess credit = 8,000 - 6,417 = $1,583 (carryover)
- US tax after FTC = 22,000 - 6,417 = $15,583
When to use the FTC vs itemized deduction
You can either claim the FTC or deduct foreign taxes on Schedule A as an itemized deduction. The FTC is almost always more beneficial because it is a dollar-for-dollar credit (reducing tax liability directly), whereas an itemized deduction only reduces taxable income (reducing tax liability by your marginal rate).
For example, if you paid $8,000 in foreign taxes and your marginal rate is 24%, the FTC saves $8,000 in tax, while a deduction saves only $1,920 (24% of $8,000). However, you must choose one or the other on a per-country basis: you can take the FTC for one country and deduct taxes from another country.
The FTC limitation can create excess credits in high-tax-rate foreign jurisdictions. For example, if you earn $100,000 in a country with 45% tax rates, you may pay $45,000 in foreign tax, but your FTC limitation may cap you at $20,000, creating a $25,000 excess. You can carry that excess forward to offset future years with higher US tax. This is why tracking excess FTCs over multiple years is important.
Foreign tax credit calculator: frequently asked questions
What is the foreign tax credit and when can I use it?
The Foreign Tax Credit (FTC) allows you to offset US income taxes dollar-for-dollar against eligible foreign income taxes paid to another country. It is available to US citizens and residents who earn foreign income and pay foreign income tax (or tax in lieu of income tax) to a foreign government. The purpose is to prevent double taxation when the same income is taxed by both the US and another country. You can choose to take the FTC or, alternatively, deduct foreign taxes on Schedule A (itemized deductions), but the FTC is usually more beneficial.
What is the FTC limitation and why does it matter?
The FTC limitation prevents you from claiming a credit larger than your US tax on worldwide income. The limitation is calculated as: US total tax * (foreign source income / total worldwide income). You can only claim a credit up to this limit. Any foreign taxes paid above the limitation create an excess FTC, which can be carried back one year or forward ten years. This rule ensures the FTC does not reduce your US tax below your share of worldwide income.
What types of foreign tax qualify for the credit?
Only foreign income tax (or tax in lieu of income tax) qualifies. This includes federal, state, and local income taxes imposed by foreign governments. Value-added taxes (VAT), sales taxes, customs duties, and payroll taxes do not qualify. Some countries impose different names for income tax; the IRS evaluates whether the tax is functionally an income tax. If in doubt, see IRS Publication 514 or consult a tax professional.
Can I claim the FTC if I use the Foreign Earned Income Exclusion (FEIE)?
No. You cannot take the FTC on income that is excluded from US taxation via the Foreign Earned Income Exclusion. If you exclude foreign earned income using Form 2555, that income is not in your US taxable income, so you cannot claim an FTC on taxes paid to the foreign country on that same income. You must choose: either exclude the income from US tax (FEIE) or include it and claim the FTC. The choice depends on your circumstances and tax rates in the foreign country.
How do I report the foreign tax credit on my US return?
You report the FTC on Form 1118 (if you have passive income such as dividends or interest) or Form 1116 (for other foreign source income). The form calculates the FTC limitation and your allowable credit. You then claim the FTC on Form 1040, reducing your US tax liability line by line. If you have carryback or carryforward FTCs from prior years, you report these on the Form 1116 as well.
What if my foreign taxes exceed the FTC limitation?
Excess foreign taxes (FTC carryover) can be carried back one tax year or forward ten tax years. This means if you have $5,000 in foreign taxes but your FTC limitation is $4,000, you have $1,000 in excess credit. You can file an amended return for the prior year to apply the $1,000, or you can apply it on your current return. If not used within the carryback/carryforward period, the excess is forfeited. Many people with variable income use carryforwards strategically.
What is the difference between the simplified and regular FTC?
There is a simplified FTC form available for certain qualifying individuals with limited foreign source income. Generally, if your foreign source income is small and your situation is straightforward, you may use the simplified form, which has fewer calculations. However, most people with significant foreign income use Form 1116 (regular FTC). Consult the IRS instructions or a tax professional to determine which applies to you.
Official sources
- IRS Publication 514 (Foreign Tax Credit): Publication 514.
- IRS Form 1116 (Foreign Tax Credit): Form 1116 PDF.
- IRC Section 901 (statute governing foreign tax credit).
- IRS Form 1040 instructions: Form 1040 Instructions.
Reviewed by the CalculatorHub team, edited by James Graham, 13 June 2026. See our methodology. General information, not financial advice.