Foreign Tax Credit Calculator — Form 1116 by Basket

The Foreign Tax Credit (FTC) is a dollar-for-dollar credit against your US income tax for income taxes paid or accrued to a foreign government. Claimed on Form 1116, it prevents double taxation on the same income. Unlike the Foreign Earned Income Exclusion (FEIE), the FTC applies to all categories of foreign income — not just wages — and is particularly effective for Americans in high-tax countries where foreign taxes approach or exceed US rates.

The FTC limitation caps your allowable credit to the amount of US tax attributable to your foreign income. The formula is: Limitation = (Foreign Source TI ÷ Total TI) × US Tax Before FTC. This prevents the FTC from wiping out US tax on domestic income. Foreign tax paid above the limitation cannot be used in the current year but carries forward 10 years or back 1 year (IRC §904(c)).

The IRS requires separate Form 1116 computations for four income categories (baskets): (1) Passive — interest, dividends, royalties, and most portfolio income; (2) General — wages, salary, and active business income from a foreign employer or trade; (3) GILTI — Global Intangible Low-Taxed Income inclusions from Controlled Foreign Corporations; (4) Treaty — income resourced as foreign under a specific US income tax treaty. Credits and carryovers cannot be mixed across baskets.

Yes, but not on the same income. If you elect the Foreign Earned Income Exclusion (Form 2555), you cannot take an FTC for taxes allocable to the excluded income. However, if you have income above the FEIE limit, you can apply the FTC to the remaining taxable foreign income. Many expats in high-tax countries (UK, Germany, France) find the FTC-only strategy more beneficial because the FTC can reduce US tax to zero on income the FEIE would leave partially exposed, and the FTC generates carryovers that can offset future US tax. Once you revoke the FEIE election, you must wait 5 years before re-electing it.