Foreign Tax Credit

Katelynn Minott, CPA & CEO July 11th, 2026

The Foreign Tax Credit is a U.S. tax credit that lets qualifying taxpayers reduce their U.S. tax bill for eligible foreign income taxes paid or accrued to another country. For U.S. expats, it is one of the main ways to reduce double taxation when the same income is taxed by both the U.S. and a foreign country.

Why it matters for U.S. expats

The Foreign Tax Credit can reduce or eliminate U.S. tax on income that has already been taxed abroad, which makes it especially important for expats in countries with income tax rates similar to or higher than U.S. rates. It can affect whether you owe U.S. tax, which form you file, how you report different income categories, and whether unused credits can be carried to another tax year.

Common questions

1. Can U.S. expats use the Foreign Tax Credit to avoid double taxation?

Yes. The Foreign Tax Credit can reduce U.S. tax when a U.S. expat pays eligible foreign income tax on foreign-source income.

2. Is the Foreign Tax Credit better than the FEIE?

It depends on the income, country of residence, and foreign tax paid. The Foreign Tax Credit is often stronger for expats in higher-tax countries, while the FEIE can work better when little or no foreign tax is paid.

3. What form is used to claim the Foreign Tax Credit?

Most individual taxpayers use Form 1116 to claim the Foreign Tax Credit. It is filed with Form 1040.

4. Can unused Foreign Tax Credit carry forward?

Yes. Unused Foreign Tax Credits can usually be carried back one year and carried forward up to 10 years.

5. How does the Foreign Tax Credit limitation work?

The credit is limited to the portion of U.S. tax connected to foreign-source taxable income. If the foreign tax paid is higher than the allowed credit for that year, the extra amount may become a carryback or carryover.

6. Can U.S. expats claim the Foreign Tax Credit and Foreign Earned Income Exclusion together?

Yes, but not on the same income. Income excluded with the FEIE cannot also be used to claim the Foreign Tax Credit.

7. What foreign taxes are creditable?

Creditable foreign taxes are usually foreign income taxes, taxes in lieu of income tax, and taxes paid to a foreign country or U.S. possession on foreign-source income.

8. What foreign taxes are not creditable?

VAT, sales tax, property tax, penalties, interest, fines, and many foreign social security taxes are not creditable as Foreign Tax Credits.

9. Can self-employed U.S. expats use the Foreign Tax Credit?

Yes, for eligible foreign income taxes paid on self-employment income. The Foreign Tax Credit does not reduce U.S. self-employment tax.

10. What happens if foreign tax changes after filing?

A foreign tax redetermination may require an amended U.S. return. This can happen after a foreign refund, audit adjustment, amended foreign return, or change in the final foreign tax paid.

When to get help

Professional guidance is important when:

You paid tax in another country and want to avoid double taxation.
You are choosing between the Foreign Tax Credit and the FEIE.
You have unused Foreign Tax Credits from prior years.
You have both general category income and passive category income.
You received a foreign tax refund or foreign tax adjustment after filing.
You have foreign business, rental, investment, or pension income.
You are unsure which foreign taxes are creditable.

Bright!Tax can calculate your Foreign Tax Credit, compare it with the FEIE, and prepare the forms needed to reduce double taxation. Get started with Bright!Tax.

Official sources

Reviewed by

Katelynn Minott, CPA & CEO

Last reviewed

June 2026

Glossary: ISA