FlagSageForeign tax credit
Glossary term
The foreign tax credit is a US rule that lets a taxpayer reduce US tax by qualifying income tax paid to a foreign country or US possession on the same income.
The IRS says a person who paid or accrued foreign taxes, and is subject to US tax on the same income, may take either a credit or an itemized deduction for those taxes. A credit reduces US tax, while a deduction reduces taxable income. Individuals, estates and trusts claim the credit on Form 1116.
Generally only income, war profits and excess profits taxes qualify. Where a treaty sets a reduced foreign rate, only the reduced amount counts. The credit cannot be claimed for tax on income excluded from US gross income, such as income covered by the foreign earned income exclusion.
Other countries have their own ways of relieving double taxation, under domestic law or a tax treaty. Their rules and limits are set by each country.
Not to be confused with
- Foreign earned income exclusion. The exclusion removes some earned income from US taxable income, while the credit reduces tax on income that stays taxable.
- Totalization agreement. A totalization agreement deals with social security taxes, which the foreign tax credit does not generally cover.
Sources
- Foreign Tax CreditOfficial guidance
Related
- Countries covered
- General
- Sources
- 1 sources
- Tax year
- Current rules as checked
- Review
- Not professionally reviewed
Sources checked November 8, 2026