What is Foreign Tax Credit?
A US tax credit that reduces your US tax liability by the amount of foreign taxes paid on foreign-source income.
Definition
The Foreign Tax Credit (FTC) is a non-refundable tax credit for income taxes paid to a foreign government as a result of foreign income tax withholdings. It's designed to prevent double taxation on income earned abroad that is subject to both US and foreign taxes.
Who Needs to Know This?
US citizens and residents who paid or accrued foreign taxes on foreign-source income and want to avoid double taxation.
Key Deadline
Claimed on your annual tax return; can be carried back 1 year or forward 10 years
Potential Penalties
N/A - this is a benefit, not a requirement
Related Forms
Common Mistakes to Avoid
- 1Not understanding the difference between FTC and Foreign Earned Income Exclusion
- 2Failing to properly categorize income by source country
- 3Not carrying forward unused credits
- 4Claiming credit for non-qualifying foreign taxes
Related Terms
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