Foreign Tax Credit Calculator
Understanding the Foreign Tax Credit
The U.S. taxes citizens and residents on their worldwide income, even when that income is earned and taxed in another country. To reduce double taxation, the foreign tax credit (FTC) lets you claim a dollar-for-dollar credit against your U.S. income tax for certain foreign income taxes you paid.
This calculator provides a simplified estimate of your potential foreign tax credit by applying the basic limitation concept from IRS Form 1116. It is designed to give you a quick sense of how much of your foreign taxes might reduce your U.S. tax bill, not to replace the official form or professional advice.
Key Inputs Used by the Calculator
- Worldwide taxable income – Your total taxable income for the year from all sources, U.S. and foreign, before any foreign tax credit.
- Foreign-source income – The portion of your taxable income that is considered foreign-source under U.S. tax rules (for example, wages earned while working abroad or foreign interest/dividends).
- Foreign taxes paid – Qualifying foreign income taxes (or taxes in lieu of income tax) you paid or that were withheld on your behalf on that foreign-source income.
- U.S. filing status – Your filing status (single, married filing jointly, married filing separately, or head of household), which affects your U.S. tax brackets and therefore the estimated U.S. tax before credits.
The tool uses these inputs to estimate your U.S. tax liability and then apply the foreign tax credit limitation formula.
The Foreign Tax Credit Limitation Formula
Even if you paid high foreign taxes, the foreign tax credit cannot exceed the portion of your U.S. tax that relates to your foreign income. The core limitation formula is:
In plain language:
- Foreign source income – The portion of your total income that is foreign.
- Worldwide income – Your total taxable income from all sources.
- U.S. tax before credit – Your estimated U.S. income tax liability before applying the foreign tax credit.
The calculator estimates your U.S. tax before credit based on your filing status and income. It then multiplies that tax by the ratio of foreign-source income to worldwide income to compute your FTC limit. Your allowable credit is the lesser of:
- The foreign income taxes you paid; or
- The FTC limit from the formula above.
Interpreting Your Results
After you enter your numbers and run the calculation, you will typically see:
- Estimated U.S. tax before foreign tax credit – Based on your worldwide taxable income and filing status.
- Computed FTC limitation – The maximum foreign tax credit allowed under the simplified formula.
- Allowable foreign tax credit – The smaller of your foreign taxes paid and the FTC limitation.
- Effective remaining U.S. tax – Your estimated U.S. tax after applying the allowable foreign tax credit.
If your foreign taxes paid are:
- Less than or equal to the FTC limit, the calculator will generally show that your entire foreign tax payment can be used as a credit.
- Greater than the FTC limit, the credit will be capped, and the tool will show that part of your foreign taxes are not currently creditable under this simplified model.
On an actual U.S. tax return, the final foreign tax credit is computed on Form 1116 and then flows to Schedule 3 and Form 1040. This calculator is only approximating the limitation concept, not producing a filing-ready amount.
Worked Example
Suppose you are a U.S. citizen filing as single with:
- Worldwide taxable income: $100,000
- Foreign-source income: $40,000 (for example, wages earned while working abroad)
- Foreign income taxes paid: $12,000
Assume your estimated U.S. tax before credits on $100,000 as a single filer is about $17,000 (the calculator will estimate this for you based on current brackets).
First, compute the ratio of foreign-source income to worldwide income:
- Foreign-source income / Worldwide income = $40,000 / $100,000 = 0.40 (40%).
Next, apply the limitation formula:
- FTC limit = 40% × $17,000 = $6,800.
You paid $12,000 of qualifying foreign income taxes, but the FTC limit is $6,800. Under this simplified model, your allowable foreign tax credit is:
- Allowable FTC = min($12,000, $6,800) = $6,800.
Your remaining U.S. income tax after the credit would be approximately:
- U.S. tax after FTC = $17,000 − $6,800 = $10,200.
In a real Form 1116 computation, any excess foreign taxes above the limitation might be carried back one year or carried forward up to ten years. This calculator does not compute carrybacks or carryforwards.
Foreign Tax Credit vs. Foreign Earned Income Exclusion
U.S. taxpayers with income earned abroad may be able to choose between the foreign tax credit and the foreign earned income exclusion (FEIE) for some income. You generally cannot use both on the same income.
| Feature | Foreign Tax Credit | Foreign Earned Income Exclusion |
|---|---|---|
| What it does | Reduces U.S. tax dollar-for-dollar for qualifying foreign income taxes paid. | Excludes up to a set amount of foreign earned income from U.S. taxation. |
| Form used | Form 1116 (and Schedule 3 / Form 1040). | Form 2555 (and Form 1040). |
| Best when | Foreign tax rates are similar to or higher than U.S. rates, or income is not eligible for exclusion. | You have moderate foreign earned income and relatively low foreign tax rates. |
| Type of tax relief | Credit against U.S. tax liability. | Exclusion from income (reduces taxable income). |
| Income coverage | Foreign-source income of many types (wages, interest, dividends, etc.), subject to basket rules. | Generally only foreign earned income (wages or self-employment), not investment income. |
This calculator only estimates the foreign tax credit side. It does not compare the numerical benefit of the foreign earned income exclusion.
What Counts as a Qualifying Foreign Tax?
Not every payment to a foreign government qualifies for the foreign tax credit. In general, qualifying taxes are:
- Imposed by a foreign country or U.S. possession.
- Income taxes or taxes in lieu of an income tax.
- Legally owed by you (or withheld on your behalf) and not a voluntary payment.
Common examples that do not qualify for the credit include:
- Value-added tax (VAT) or goods and services tax (GST).
- Sales taxes, excise taxes, or customs duties.
- Property taxes and estate or inheritance taxes.
- Employee social insurance contributions that are not treated as income taxes under U.S. rules.
If you are unsure whether a foreign tax qualifies, professional advice or detailed IRS guidance may be necessary.
Calculator Assumptions & Limitations
This tool makes several simplifying assumptions to keep the estimation process straightforward. Before relying on the output, keep in mind that the calculator:
- Uses a single income basket – It assumes one combined category of foreign income. Actual Form 1116 rules may require separate calculations for passive income, general income, and other categories.
- Does not compute carrybacks or carryforwards – Any excess foreign taxes above the limitation are not tracked across years.
- Applies simplified U.S. tax estimation – U.S. tax before credits is estimated based on basic rates and your filing status, without modeling every possible deduction, credit, or special rule.
- Does not apply treaty-specific rules – The impact of income tax treaties, re-sourced income, or special treaty positions is not reflected.
- Is for general education – It is not a substitute for IRS forms, tax software, or personalized advice from an international tax professional.
Because foreign tax credit rules are complex and fact-specific, consider using this calculator as a starting point for understanding your situation and discussing it with a qualified advisor, especially if you have multiple countries, large amounts of foreign income, or mixed types of income such as wages, interest, and dividends.
Frequently Asked Questions
Should I take foreign tax credit or foreign earned income exclusion?
The Foreign Earned Income Exclusion (Form 2555) excludes up to $120,000 (2024) of foreign earned income from US taxation. FTC provides dollar-for-dollar credit for foreign taxes. If foreign tax rates exceed US rates, FTC may be better. If foreign rates are low, exclusion saves more. You can't use both for the same income but can combine them for different income types. Run calculations both ways or consult a tax professional.
Can I claim credit for taxes paid to all countries?
Yes, subject to limitations. You can claim credits for taxes paid to any recognized foreign government. However, taxes paid to countries under US sanctions or not recognized by the US may not qualify. Also, separate FTC limits apply to different categories of income (passive, general, etc.). Taxes paid on excluded income under Form 2555 don't qualify for credit.
What if my foreign taxes exceed the credit limit?
Excess foreign tax credits carry back 1 year and forward 10 years. You can use carrybacks/carryforwards in years where you have unused FTC limitation space. This prevents permanent loss of credits due to temporary high foreign taxes or low US taxes. Track carryover amounts carefully as they expire after 10 years.
Do I need Form 1116 or can I use simpler method?
If foreign taxes are $300 ($600 married) or less and all income is passive (interest, dividends), you can claim credit directly on Schedule 3 without Form 1116. Otherwise, Form 1116 is required. Multiple income types require separate Form 1116 for each category. Form 1116 is complex—consider tax software or professional help.