The foreign tax credit isn’t simply a dollar-for-dollar credit for every dollar of foreign tax paid — it’s capped by the U.S. tax attributable to the foreign-source income itself.
How it works
The FTC limit is U.S. tax before the credit, scaled by the share of total taxable income that’s foreign-source. The allowed credit is the smaller of foreign tax paid or that limit; any excess carries over to future years.
What this does not include
Real FTC calculations separate income into specific categories (passive, general, and others) with separate limitations for each — this calculator computes a single blended limitation rather than a category-by-category Form 1116 calculation.
How to use this calculator
- Enter U.S. tax before the credit, foreign-source income, and total taxable income.
- Enter foreign tax actually paid.
Frequently asked questions
Why is the credit capped instead of a straight dollar-for-dollar offset?
To prevent foreign tax paid at a higher rate than the U.S. rate from offsetting U.S. tax on domestic income — the credit is limited to what the U.S. would have taxed on the foreign income specifically.
What happens to unused foreign tax credit?
It generally carries forward (and can carry back one year) for use in years when the limitation allows more credit than foreign tax paid that year.
Is the FTC better than the FEIE?
It depends on the specific situation — the FTC can be more valuable at high foreign tax rates, while the FEIE is often simpler and more valuable when foreign tax rates are low or the income is under the exclusion limit.
