Foreign Tax Credit: What It Is, How to Claim It

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What is the foreign tax credit?
- Federal: $79 to $139. Free version available for Simple Form 1040 returns only.
- State: $0 to $69 per state.
- Expert help or full service filing is available with an upgrade to Live packages for a fee.
U.S. citizens have to report foreign income
- Salaries, wages and tips.
- Commissions and bonuses.
- Professional fees.
- Certain allowances or reimbursements for cost of living, home leave or moving.
- Dividends, interest and capital gains.
- Gambling winnings.
- Alimony.
- Social security benefits, pensions and annuities.
- Business profits.
- Royalties.
- Rent.
- Certain scholarships or fellowships.
- Employer-provided lodging, meals or use of a car
.
Some foreign income may be tax-free
- the foreign earned income exclusion, and
- the foreign tax credit or deduction.
How the foreign earned income exclusion works
- Some of your housing expenses may count, too. (And if you’re self-employed, they might be deductible.) IRS Publication 54 has the details.
- Typically, the amount of income you can exclude is prorated by the percentage of days during the year you were outside the United States.
How the foreign tax credit (FTC) works
Foreign tax credit carryover and carryback
- Federal: $79 to $139. Free version available for Simple Form 1040 returns only.
- State: $0 to $69 per state.
- Expert help or full service filing is available with an upgrade to Live packages for a fee.
You may also have to report foreign assets to the IRS
If you live in the U.S.
You probably need to file Form 8938 if your filing status is ... | ... and the value of the assets on the last day of year is more than ... | ... OR if the value of the assets on any day during tax year is more than ... |
---|---|---|
Single | $50,000 | $75,000 |
Married, filing jointly | $100,000 | $150,000 |
Married, filing separately | $50,000 | $75,000 |
If you live outside the U.S.
You probably need to file Form 8938 if your filing status is ... | ... and the value of the assets on the last day of year is more than ... | ... OR if the value of the assets on any day during tax year is more than ... |
---|---|---|
Single | $200,000 | $300,000 |
Married, filing jointly | $400,000 | $600,000 |
Married, filing separately | $200,000 | $300,000 |
Reporting your foreign bank accounts might be on the to-do list
- To report foreign bank accounts, file Financial Crimes Enforcement Network (FinCEN) Form 114, which is the Report of Foreign Bank and Financial Accounts (also called “FBAR”). In 2025, your FBAR was due on April 15. Those who missed the deadline get an automatic extension until Oct. 15, and people affected by natural disasters may get more time.
- These places don’t count as foreign countries in the context of this rule: the Northern Mariana Islands, the District of Columbia, American Samoa, Guam, Puerto Rico, the U.S. Virgin Islands and the Trust Territories of the Pacific Islands.
- And these types of foreign financial accounts typically don’t count: correspondent/nostro accounts, accounts owned by a governmental entity, accounts owned by an international financial institution, accounts in a U.S. military banking facility, or accounts in an IRA, a retirement plan or a trust.
- If you don't submit your FBAR, you can face some financial penalties and could even go to jail. Good news, though: The IRS doesn’t penalize people who file their FBARs late if it decides you had a good reason for the late filing
.
Article sources
- 1. Internal Revenue Service. Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad. Accessed Sep 24, 2024.
- 2. Internal Revenue Service. 2023 Instruction 1040. Accessed Sep 24, 2024.
- 3. Internal Revenue Service. Topic No. 856, Foreign Tax Credit. Accessed Sep 24, 2024.
- 4. Internal Revenue Service. Instructions for Form 8938. Accessed Sep 24, 2024.
- 5. Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers. Accessed Sep 24, 2024.
- 4. Internal Revenue Service. Instructions for Form 8938. Accessed Sep 24, 2024.
- 7. Internal Revenue Service. Details on reporting foreign bank and financial accounts. Accessed Sep 24, 2024.
- What is the foreign tax credit?
- U.S. citizens have to report foreign income
- Some foreign income may be tax-free
- How the foreign earned income exclusion works
- How the foreign tax credit (FTC) works
- You may also have to report foreign assets to the IRS
- Reporting your foreign bank accounts might be on the to-do list