Foreign Tax Credit

The foreign tax credit was implemented to reduce a double tax burden for citizens earning income outside of the United States—income taxed once by the United States and again by the foreign country from which the income is derived.

What Foreign Taxes Qualify for the Foreign Tax Credit?

Income taxes paid to a foreign country (or taxes paid in lieu of an income tax) are eligible for the foreign tax credit. Taxes that are disqualified from the foreign tax credit are those paid to a foreign country that are later reimbursed by an employer, or if: (1) the Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, (2) the United States has severed or does not conduct diplomatic relations with the country, or (3) the United States does not recognize the country's government.

Can I Deduct Foreign Taxes I Paid?

You can choose to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction, but not both. You may be able to use taxes paid or accrued as a carryover tax credit if they exceed the credit amount in a single year. The amount and time limit of the carryover or carry back depend on the year that you are filing.

Can I Get Credit for Excluded Foreign Earned Income?

You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the Foreign Earned Income Exclusion or the Foreign Housing Exclusion. There is no double taxation in this situation because the income is not subject to United States tax.

More Information about Excluding Foreign Earned Income

Learn more about the Foreign Tax Credit in Publication 514 - Foreign Tax Credit for Individuals

Foreign Income Exclusions for U.S. Citizens and Resident Aliens

See what other tax credits you may qualify to claim on your tax return.