Foreign Tax Credit Calculator

Description

The Foreign Tax Credit Calculator helps U.S. taxpayers estimate the amount of credit they can claim on their federal tax return for income taxes paid or accrued to foreign countries. The Foreign Tax Credit (FTC) under IRC Section 901 is the primary mechanism for preventing double taxation of income that is taxed by both the United States and a foreign country. However, the FTC is not a simple dollar-for-dollar credit — it is subject to a limitation that ensures you cannot use foreign taxes to offset U.S. tax on U.S.-source income. This calculator performs the FTC limitation calculation prescribed by IRC Section 904, which limits the credit to the proportion of your U.S. tax that corresponds to your foreign-source taxable income relative to your total worldwide taxable income. The formula is: FTC Limitation = U.S. Tax x (Foreign Source Taxable Income / Worldwide Taxable Income). If your creditable foreign taxes exceed this limitation, the excess can be carried back one year or carried forward ten years. The calculator handles both the general category and passive category income baskets separately, as each basket has its own limitation. For taxpayers with Canadian income — one of the most common cross-border scenarios — the calculator includes pre-built support for Canadian federal and provincial tax credits, properly distinguishing between creditable income taxes and non-creditable levies such as CPP contributions and EI premiums. The calculator also models the interaction between the FTC and the Foreign Earned Income Exclusion, helping you understand how electing the FEIE affects your available Foreign Tax Credit by reducing both foreign-source income and the associated foreign taxes in the limitation calculation.

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Formula Explanation

FTC Limitation = U.S. Tax Liability x (Foreign Source Taxable Income / Worldwide Taxable Income). The allowable FTC is the lesser of (1) the actual foreign taxes paid or accrued, or (2) the FTC limitation. If foreign taxes exceed the limitation, the excess can be carried back 1 year or carried forward 10 years. Each income category (general, passive) has its own separate limitation.

Example Calculation

Frequently Asked Questions