Understanding the 2023 Federal Form 1116: How to Claim the Foreign Tax Credit
The 2023 Federal Form 1116 is used to calculate and claim the Foreign Tax Credit (FTC) for U.S. taxpayers who have paid or accrued taxes to a foreign country or U.S. possession on income that is also subject to U.S. tax. This form helps individuals and businesses avoid double taxation on the same income by allowing a deduction of the foreign taxes paid from U.S. tax liability or by claiming a credit against U.S. tax.
What is the Foreign Tax Credit (FTC)?
The Foreign Tax Credit (FTC) is a tax benefit available in the United States that allows U.S. citizens or resident aliens to offset income taxes paid to foreign countries or U.S. possessions against U.S. federal income tax liability. The FTC is designed to prevent double taxation on the same income earned internationally.
Who Should Use Form 1116?
Form 1116, Foreign Tax Credit, is used by individuals, estates, and trusts to claim a foreign tax credit against U.S. federal income tax liability. The following individuals and entities should use Form 1116:
- U.S. citizens: U.S. citizens who have paid foreign income taxes on income earned from sources outside the United States.
- Resident aliens: Resident aliens who have paid foreign income taxes on income earned from sources outside the United States.
- Estates and trusts: Estates and trusts that have paid foreign income taxes on income earned from sources outside the United States.
- Non-resident aliens: Non-resident aliens who have paid foreign income taxes on income earned from sources within the United States, but only if there is a U.S. tax liability.
- Foreign tax credit claimants: Individuals and entities that have claimed a foreign tax credit in a prior year and have unused credits to carry over or carry back.
For the current year's Form 1116, click here.