Paid income tax to another country on wages, dividends or interest? Enter the foreign tax, your foreign-source taxable income and your U.S. tax to see the credit you can claim on your Form 1040, the Form 1116 limit, any unused foreign tax you can carry to other years, and whether deducting the tax instead would be worth more.
Foreign Tax Credit Inputs
Sets the standard deduction used in the credit vs deduction comparison. The credit limit itself works the same way in both years.
Only married filing jointly gets the $600 limit for claiming the credit without Form 1116; every other status uses $300.
Qualified foreign income taxes for this income category, converted to U.S. dollars (Form 1116 line 8). Leave out foreign property, sales and social security taxes and any amount refundable to you.
Form 1116 figures a separate limit for each category. Most income earned abroad is general; dividends and interest from foreign funds and stocks are passive.
Form 1116 line 17: foreign gross income in the category less the deductions allocated to it. Enter 0 for a loss.
Usually the same as line 15, your total taxable income from U.S. and foreign sources. If line 14 is more than line 11b, enter the negative difference: Form 1116 line 18 uses it before the senior deduction is added back.
2025 through 2028 only. Form 1116 line 18 adds it back to taxable income, so it does not shrink the denominator. Enter 0 if you did not claim it.
Form 1116 line 20: Form 1040 line 16 plus Schedule 2 line 1z, less any tax from Form 4972. Do not include self-employment tax, the net investment income tax or the alternative minimum tax.
Answer Yes only if every dollar of your foreign income for the year is passive (dividends, interest) and the tax entered above is all of your foreign tax, all reported on Form 1099-DIV, Form 1099-INT, Schedule K-1 (Form 1041) or Schedule K-3. Any foreign wages or business income, or tax not on a payee statement, means No.
The election skips the limit but forfeits any carryover of that year's foreign tax. Choose No to see the Form 1116 result instead.
Same category only (Form 1116 line 10). Used only if this year's limit is more than this year's foreign tax.
Your Schedule A total without the foreign tax, for the credit vs deduction comparison. Enter 0 if you take the standard deduction.
Adds the additional standard deduction to the comparison: $2,000 / $1,600 per box for 2025, $2,050 / $1,650 for 2026 (unmarried / married).
Used only to value the deduction alternative.
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Enter your foreign tax and income to see the credit you can claim
Foreign Tax Credit
Limit = U.S. income tax before credits x (foreign-source taxable income / worldwide taxable income), fraction capped at 1 (IRC 904(a); Form 1116 lines 17 to 21). Worldwide taxable income adds back the Schedule 1-A line 37 senior deduction. Election without Form 1116: passive income on payee statements and foreign tax of $300 or less ($600 married filing jointly) (IRC 904(j)). Excess carries back 1 year and forward 10 (IRC 904(c)). One income category; the AMT foreign tax credit is not modeled; the deduction value is an estimate at the bracket you select. Educational estimate only.
Want the full rules - which foreign taxes qualify, how the income categories and the limitation work, the $300 / $600 shortcut, carrybacks and carryforwards, and the foreign earned income exclusion trade-off? Read the companion guide.
Your foreign tax credit is the smaller of the foreign income tax you paid and the Form 1116 limit. The limit is your U.S. income tax x (foreign-source taxable income / total taxable income), so the credit can only cancel the U.S. tax on your foreign income, never the tax on U.S. income. With $21,000 of U.S. tax, $20,000 of foreign-source taxable income and $120,000 of taxable income, the limit is $3,500; if you paid $4,500 abroad, you claim $3,500 and carry $1,000 back 1 year or forward up to 10. If all your foreign income is passive (dividends, interest) on a 1099 or K-1 and the tax is $300 or less ($600 married filing jointly), you can skip Form 1116 and claim it all on Schedule 3.
Key Takeaways
The limit: U.S. tax x foreign-source taxable income / worldwide taxable income, figured separately for each income category on Form 1116.
The credit: the smaller of the qualified foreign tax and the limit, entered on Schedule 3, line 1.
Shortcut: no Form 1116 for $300 or less ($600 joint) of foreign tax on passive income reported on a payee statement; no carryover from that year.
Carryover: foreign tax over the limit goes back 1 year, then forward 10 years.
Credit or deduction: one choice for all qualified foreign taxes in a year; the credit usually wins.
Senior deduction: for 2025 through 2028 it is added back to taxable income when figuring the limit.
How This Calculator Figures the Foreign Tax Credit
The tool follows Part III of Form 1116 for one income category, then checks the election that lets you skip the form, and finally compares the credit with deducting the same tax. For the rules behind each input, see the Foreign Tax Credit Guide.
Step 1: The Limitation Fraction (Form 1116 Lines 17 to 19) IRC 904(a)
IRC 904(a) says the credit "shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer's taxable income from sources without the United States (but not in excess of the taxpayer's entire taxable income) bears to his entire taxable income." Line 17 is your foreign-source taxable income in the category. Line 18 is your taxable income; for 2025 the Form 1116 instructions add back the enhanced deduction for seniors from Schedule 1-A line 37. Line 19 divides line 17 by line 18. If line 17 is more than line 18 the fraction is 1, and if line 18 is zero it is 0. The tool keeps the full fraction; the form allows rounding to at least four decimal places, which can move the limit by a few dollars.
Step 2: The Limit and the Credit (Lines 20 to 24) Form 1116
Line 20 is your U.S. income tax before credits (Form 1040 line 16 plus Schedule 2 line 1z, less any Form 4972 tax). Line 21 is line 20 times line 19: the limit. The tool shows line 19 rounded to four decimal places but multiplies by the exact fraction, so the limit can differ from line 20 times the rounded figure because of that rounding, by more on larger amounts (for example $20,000 exactly versus $19,998 using 0.3333). The credit for the category is the smaller of the foreign tax you paid or accrued (plus any carryover you can use) and the limit, rounded to the cent here.
Step 3: Carryovers IRC 904(c)
Foreign tax over the limit is deemed paid in the first preceding year and then in the first 10 succeeding years, in that order. A carryover coming in is used only to the extent this year's limit is more than this year's foreign tax, which is how IRS Publication 514's example works. The tool shows how much carryover is used, the old carryover left, and this year's unused tax.
Step 4: The $300 / $600 Election IRC 904(j)
If all your foreign-source gross income is passive category income, all of it and the tax on it was reported on a payee statement, and your creditable foreign taxes are $300 or less ($600 on a joint return), you can elect to claim the credit without Form 1116. The limit does not apply and the credit is the smaller of the foreign tax and your regular tax. In exchange, none of that year's foreign tax can be carried to another year.
Step 5: Credit or Deduction Pub. 514
Instead of the credit, you can deduct foreign income taxes on Schedule A line 6, outside the state and local tax cap (IRC 164(b)(6)). That only helps if your itemized deductions, foreign tax included, exceed your standard deduction. The tool takes the extra deduction over what you would otherwise claim and multiplies it by your top bracket, so it assumes the whole deduction comes out of that bracket. The 2025 and 2026 standard deductions come from Rev. Proc. 2025-32 and the One Big Beautiful Bill Act.
Foreign Tax Credit Figures for 2025 and 2026
Credit rules and comparison figures (IRC 904, Pub. 514, Form 1116 instructions, Rev. Proc. 2025-32)
Item
2025
2026
Limit (each category)
U.S. tax x foreign-source taxable income / worldwide taxable income
No-Form-1116 election ceiling
$300 ($600 joint)
$300 ($600 joint)
Carryback / carryforward
1 year / 10 years
1 year / 10 years
Senior deduction added back to line 18
Yes (Schedule 1-A line 37)
Yes, through 2028
Standard deduction: single or married filing separately
$15,750
$16,100
Standard deduction: married filing jointly or surviving spouse
$31,500
$32,200
Standard deduction: head of household
$23,625
$24,150
Additional standard deduction per box (unmarried / married)
$2,000 / $1,600
$2,050 / $1,650
Time to switch from deduction to credit
10 years from the return's regular due date
Worked Examples
Example 1 - Working abroad in a higher-tax country (default inputs)
Foreign-source taxable income / taxable income$20,000 / $120,000
Limit: $21,000 x 20,000 / 120,000$3,500.00
Foreign tax paid$4,500.00
Credit (smaller of the two)$3,500.00
Unused: carry back to the prior year, then forward up to 10 years$1,000.00
Example 2 - IRS Publication 514: using a carryover
Foreign tax paid in 2025 (general category)$600.00
Carryover from 2024$200.00
2025 limit$700.00
Credit: $600 paid + $100 of the carryover$700.00
2024 carryover left for 2026$100.00
Example 3 - $300 of tax withheld on international fund dividends (single)
Foreign tax on Form 1099-DIV box 7$300.00
Form 1116 limit if you filed it ($9,000 x 1,000 / 80,000)$112.50
Credit with the election, no Form 1116$300.00
At $301 the election is gone: credit $112.50, $188.50 carried$112.50
Example 4 - Retiree claiming the 2025 senior deduction
Taxable income + $6,000 Schedule 1-A line 37$56,000.00
Limit: $5,000 x 10,000 / 56,000$892.86
Limit if the add-back were missed ($5,000 x 10,000 / 50,000)$1,000.00
Practitioner Insight (LMN Tax Inc.)
LMN Tax Inc. - Planning Notes
The most common foreign tax credit we see is the small one: a brokerage 1099-DIV with a few hundred dollars in box 7 from an international index fund. If it is $300 or less ($600 joint) and everything is on the 1099, we take the election and skip Form 1116. Above that line, software builds a Form 1116, and the limit is often a little lower than the tax paid because qualified dividends must be adjusted before they go into the fraction.
The second group is people who worked abroad. In a country with higher tax rates than the U.S., the credit usually wipes out the U.S. tax on the foreign wages and leaves an excess. That excess is worth tracking: it can absorb U.S. tax on foreign income in a lower-tax year, such as the year you move back, for up to 10 years.
The third is the choice between the credit and the foreign earned income exclusion. You cannot take a credit for the foreign tax on wages you exclude, and once you revoke the exclusion you cannot choose it again for 5 tax years without IRS approval. We run both before the first return abroad is filed, not after.
Finally, we check whether the client deducted foreign tax in a past year. You have 10 years from that return's due date to switch to the credit on an amended return, which can unlock carryovers that were treated as absorbed in the deduction year.
When This Calculator Does Not Cover Your Situation
More than one income category. Passive, general, foreign branch, section 951A and treaty-resourced income each need their own Form 1116 and limit. Run the tool once per category and add the credits.
Qualified dividends and capital gains. If foreign or U.S. qualified dividends or capital gains are taxed at the 0%, 15% or 20% rates, Form 1116 may require the adjustments in the Worksheet for Line 18, which the tool does not make. Use the adjusted figures if you have them.
Allocating deductions. Line 17 assumes you have already subtracted the deductions that relate to the foreign income and a share of the ones that do not. The tool does not apportion them.
Losses and recapture. Overall foreign losses, overall domestic losses and separate limitation losses change the fraction and are not modeled.
Foreign earned income exclusion. Tax on wages you excluded on Form 2555 is not creditable. Enter only foreign tax on income you did not exclude.
Alternative minimum tax. The AMT foreign tax credit has its own limit based on alternative minimum taxable income and is figured on Form 6251.
Deduction value. The comparison multiplies the extra deduction by one bracket rate. A large deduction that crosses a bracket line is worth slightly less.
Frequently Asked Questions
How is the foreign tax credit limit calculated?
Under IRC 904(a) the credit cannot be more than your U.S. income tax multiplied by a fraction: your taxable income from foreign sources in the category, divided by your total taxable income from all sources. Form 1116 does this on lines 17 to 21. If the fraction is more than 1, you use 1. For example, with $21,000 of U.S. tax, $20,000 of foreign-source taxable income and $120,000 of total taxable income, the limit is $21,000 x 20,000 / 120,000 = $3,500. Your credit is the smaller of the foreign tax paid and that limit.
Can I claim the foreign tax credit without Form 1116?
Yes, if all of your foreign-source gross income is passive category income such as dividends and interest, all of that income and the foreign tax on it was reported to you on a payee statement such as Form 1099-DIV, Form 1099-INT or Schedule K-1 or K-3, and your total creditable foreign taxes are not more than $300 ($600 if married filing jointly). You then enter the smaller of your foreign tax or your regular tax on Schedule 3, line 1. The limitation does not apply, but you cannot carry any of that year's foreign tax to another year.
What happens to foreign tax that is more than the limit?
The excess is carried back 1 year and then forward 10 years, in that order, under IRC 904(c). It can be used in another year only to the extent that year's limit is more than the foreign taxes actually paid in that year. IRS Publication 514's example: $600 of foreign tax paid in 2025, a $200 carryover from 2024 and a $700 limit give a $700 credit, using $100 of the carryover and leaving $100 to carry to 2026.
Is it better to take the foreign tax credit or the deduction?
In most cases the credit. A credit reduces your U.S. tax dollar for dollar, you can claim it without itemizing, and the excess can be carried to other years. A deduction only reduces taxable income, and only helps if your itemized deductions exceed the standard deduction. You must choose one treatment for all qualified foreign taxes in a year, and you can change the choice within 10 years of the return's due date. Foreign income taxes deducted on Schedule A line 6 are not subject to the state and local tax deduction cap.
Does the senior deduction affect the foreign tax credit?
Yes, for 2025 through 2028. The Instructions for Form 1116 (2025) say the enhanced deduction for seniors reported on Schedule 1-A line 37 must be removed from taxable income when you figure the limitation. Form 1116 line 18 is taxable income plus that deduction, so the denominator of the fraction is larger and the limit is slightly smaller than it would be with plain taxable income.
Can I use the foreign tax credit against the alternative minimum tax?
A separate AMT foreign tax credit is figured on Form 6251 with its own limitation based on alternative minimum taxable income. This calculator figures the regular-tax credit on Form 1116 only.
What to Do Next
If You Are Under $300 / $600
Check that all your foreign income is dividends or interest reported on a 1099 or K-1, then enter the tax on Schedule 3, line 1. The Foreign Tax Credit Guide lists what qualifies.
IRS Instructions for Form 1116 (2025) - The election to claim the credit without Form 1116 and its $300 / $600 ceiling, lines 17 to 24, the line 18 add-back of the Schedule 1-A line 37 senior deduction, line 20 U.S. tax, carrybacks and carryovers.
26 U.S. Code 904 - Limitation on credit - The 904(a) fraction, 904(b)(1) taxable income without personal exemptions, the 904(c) 1-year carryback and 10-year carryforward, and the 904(j) exemption for individuals.
IRS Rev. Proc. 2025-32 - The 2026 standard deduction and additional standard deduction amounts.
Disclaimer: This calculator provides estimates for educational purposes only and does not constitute tax, legal, or financial advice. It applies the IRC 904 limitation as computed on Form 1116 lines 17 to 24 for one income category, the IRC 904(j) election for $300 or less ($600 married filing jointly) of foreign tax, and the IRC 904(c) carryover order, using the figures you enter. It does not decide whether a foreign tax is creditable, allocate or apportion deductions, adjust qualified dividends and capital gains, apply overall foreign or domestic loss rules, compute the AMT foreign tax credit, or figure your U.S. tax for you. Form 1116, its instructions and IRS Publication 514 control.