Foreign Tax Credit 2027 Calculator (Form 1116)
Calculate your 2027 Foreign Tax Credit on foreign-source income — wages, dividends, interest, or business income earned abroad. Computes the FTC limitation by income category and shows when the de minimis $300/$600 election lets you skip Form 1116. Free, private, no sign-up.
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What is the Foreign Tax Credit and why use it?
The Foreign Tax Credit (FTC) under IRC §901 lets U.S. taxpayers reduce their federal income tax dollar-for-dollar by the amount of foreign income taxes paid on the same income. The goal is to avoid double taxation of income that is taxed both by a foreign country and the United States. The alternative is to deduct foreign income tax as an itemized deduction — usually inferior because a credit reduces tax directly while a deduction only reduces taxable income.
The FTC applies to U.S. citizens and resident aliens earning foreign-source income — wages from working abroad, dividends from foreign stocks, interest from foreign banks, rental income from foreign property, or business income from a foreign branch. It also covers income reported on Schedule K-3 from partnerships and S corporations with foreign-source income.
The Form 1116 FTC limitation formula
The FTC cannot exceed your U.S. tax on the same foreign-source income. The "limitation" is calculated separately for each Section 904(d) income category — the "basket" rule. The four main baskets are: passive (dividends, interest, capital gains, royalties), general (wages, active business income), foreign branch income, and GILTI (the deemed income inclusion from controlled foreign corporations under §951A).
Formula: FTC limit = (foreign-source taxable income / total taxable income) × pre-credit U.S. tax. Example: $20,000 of foreign-source passive income, $120,000 total taxable income, $20,000 of pre-credit U.S. federal tax. Limit = ($20,000 / $120,000) × $20,000 = $3,333. If you paid $3,000 of foreign tax, you can claim the full $3,000. If you paid $5,000 of foreign tax, only $3,333 is allowable; the remaining $1,667 carries forward up to 10 years and back 1 year.
De minimis election and choosing credit vs deduction
The simplest path for many investors: if your total foreign tax paid is $300 or less (single) or $600 or less (MFJ), and all your foreign income is passive and reported on a third-party payee statement like 1099-DIV or 1099-INT, you can claim the full foreign tax as a credit on Schedule 3 line 1 without filing Form 1116. This eliminates the limitation computation entirely.
Above the de minimis thresholds, Form 1116 is required for each separate basket of foreign income. You may also elect to deduct foreign taxes as an itemized deduction instead of taking the credit — but the election applies to ALL foreign taxes in that year (you cannot mix credit and deduction). Credit is almost always better unless your foreign tax rate is below the U.S. rate, you have insufficient U.S. tax liability, AND you do not benefit from carryover.
Source: irs.gov — Publication 514 and Form 1116 instructions. Updated May 2026 reflecting current IRC §901–904 and OBBB (P.L. 119-21) GILTI changes.