Form 1116: What it is, Who needs it, and How to claim the FTC
If you are a U.S. citizen or resident living abroad, you may pay tax in both the United States and your country of residence. Form 1116 is the IRS form that helps reduce double taxation by allowing eligible taxpayers to claim the Foreign Tax Credit.
For many U.S. expats, Form 1116 is one of the most important forms in their annual U.S. tax return. It can reduce U.S. tax owed on foreign income, but it must be completed carefully to avoid mistakes, missed credits, or IRS issues.
Last updated May 14, 2026
Written by: Rose-Ann De Villa, EA, CPA
In this article
What is Form 1116 used for?
Form 1116 is used by individuals, estates, and trusts to claim a credit for certain foreign taxes paid or accrued to a foreign country or U.S. possession. The IRS explains that individuals generally use Form 1116 to claim the foreign tax credit when they paid or accrued qualifying foreign taxes.
The purpose of Form 1116 is to help prevent the same income from being taxed twice: once by a foreign country and again by the United States.
For example, if you are a U.S. expat living in the United Kingdom, Australia, Canada, Germany, or another country where you pay income tax, you may be able to use Form 1116 to reduce your U.S. tax bill.
Form 1116 is commonly used for:
- foreign salary or wages;
- foreign self-employment income;
- foreign dividends;
- foreign interest;
- foreign rental income;
- foreign pension income;
- foreign tax credit carryovers from prior years.
Who needs to file Form 1116?
You may need to file Form 1116 if you paid or accrued foreign income taxes and want to claim the Foreign Tax Credit on your U.S. tax return.
This often applies to U.S. expats who:
- live and work outside the United States;
- pay income tax to a foreign government;
- receive foreign investment income with tax withheld;
- have foreign tax credit carryovers;
- earn income in more than one country;
- have both U.S. and foreign-source income;
- do not qualify for the simplified foreign tax credit election.
The IRS Form 1116 itself states that taxpayers should generally use a separate Form 1116 for each category of income and report amounts in U.S. dollars, except where specified.
When are you required to file Form 1116?
You are generally required to file Form 1116 if you want to claim the Foreign Tax Credit and your situation does not qualify for the simplified exception.
Some taxpayers can claim the Foreign Tax Credit without filing Form 1116 if their foreign taxes are small and meet specific IRS conditions. This simplified option usually applies when foreign taxes are no more than $300, or $600 if married filing jointly, and the income is passive income reported on qualified statements such as certain Forms 1099. The IRS notes that this election exempts taxpayers from the Form 1116 limitation calculation, but not from all Foreign Tax Credit requirements.
You will usually need Form 1116 if:
- Your foreign taxes exceed the simplified threshold.
- Your foreign income includes wages or self-employment income;
- You have foreign tax credit carryovers.
- You have multiple categories of foreign income.
- You paid tax to multiple countries.
- You have foreign dividends requiring adjustments.
- You are claiming the credit for more complex foreign tax situations.
Form 1116 Instructions
The Form 1116 instructions explain how to calculate the Foreign Tax Credit and determine how much foreign tax can be used to reduce your U.S. tax.
Form 1116 is divided into several main parts.
Part I: Taxable Income or Loss From Sources Outside the United States
This section reports your foreign-source income. You must choose the correct income category, such as passive category income or general category income.
Common examples include:
- general category income for foreign wages, salary, or business income;
- passive category income for foreign dividends, interest, royalties, or certain investment income.
The IRS requires separate reporting for different categories of income, and the Form 1116 instructions explain that Schedule B may also be needed when carryovers are involved.
Part II: Foreign Taxes Paid or Accrued
This section reports the foreign taxes you paid or accrued. You must list the foreign country, the date paid or accrued, and the amount of tax.
Part III: Figuring the Credit
This section calculates the foreign tax credit limitation. The credit is not always equal to the full amount of foreign tax paid. Instead, it is limited to your foreign-source taxable income relative to your total taxable income.
Part IV: Summary of Credits
If you file more than one Form 1116, Part IV summarizes the total Foreign Tax Credit from each separate category.
What happens if I don’t file Form 1116?
If you are required to file Form 1116 but do not include it with your U.S. tax return, you may lose the ability to claim the Foreign Tax Credit for that year.
This can lead to:
- paying more U.S. tax than necessary;
- losing or miscalculating foreign tax credit carryovers;
- receiving an IRS notice;
- needing to amend your tax return;
- incorrectly claiming the credit without proper support.
For U.S. expats, failing to file Form 1116 can be costly, as the Foreign Tax Credit is often a key tool for reducing double taxation.
How do I fill out Form 1116 for Foreign Tax Credit Claims? Step by Step
Here is a simplified step-by-step guide to completing Form 1116.
Step 1: Gather your foreign income records
Start by collecting records of all foreign income, including:
- salary or wages;
- self-employment income;
- dividends;
- interest;
- rental income;
- pensions;
- capital gains.
Step 2: Gather your foreign tax records
Collect documents showing foreign tax paid or accrued, such as:
- foreign tax returns;
- payslips;
- tax assessments;
- employer tax certificates;
- bank statements;
- dividend statements;
- brokerage statements.
Step 3: Separate your income by category
Form 1116 requires income to be separated into categories. Common categories include:
- passive category income;
- general category income;
- Section 901(j) income;
- certain other categories listed on the form.
You may need to file more than one Form 1116 if you have more than one income category.
Step 4: Convert foreign amounts to U.S. dollars
Foreign income and foreign taxes generally need to be reported in U.S. dollars. Use appropriate exchange rates and keep records of how you calculated the conversion.
Step 5: Complete Part I
Enter your foreign-source income and any related deductions or losses.
Step 6: Complete Part II
Enter the foreign taxes paid or accrued by country.
Step 7: Complete Part III
Calculate the foreign tax credit limitation. This determines how much credit you can actually claim.
Step 8: Complete Part IV
If you have multiple Forms 1116, summarize the credits in Part IV.
Step 9: Attach Schedule B if needed
If you have foreign tax credit carryovers, you may need to attach Schedule B.
Step 10: File Form 1116 with your Form 1040
Attach Form 1116 to your U.S. individual income tax return.
What is Form 1116 Schedule B?
Schedule B Form 1116 is used to reconcile foreign tax credit carryovers.
You may need Schedule B if you had unused foreign taxes from a prior year or generated a foreign tax credit carryover in the current year. The IRS states that Schedule B is used to reconcile prior-year foreign tax carryovers with current-year carryovers, and a separate Schedule B may be needed for each applicable income category.
In simple terms, Schedule B helps track foreign taxes that could not be fully used in the current tax year.
This is common when:
- You paid more foreign tax than your U.S. Foreign Tax Credit limit allows;
- You live in a high-tax country.
- Your U.S. tax on foreign income is lower than the foreign tax paid;
- You have unused credits from previous years.
Form 1116 Paid or Accrued
When completing Form 1116, you must indicate whether your foreign taxes were paid or accrued.
Paid
The paid method means you claim the foreign tax in the year you actually paid it.
Accrued
The accrued method means you claim the foreign tax in the year the tax liability became fixed, even if you paid it later.
This choice matters because it affects timing, carryovers, and possible future adjustments. Expats should be careful when choosing between paid and accrued, especially if the foreign country’s tax year does not match the U.S. calendar year.
What are the common mistakes to avoid on Form 1116?
Form 1116 can be complex, and mistakes are common. Here are some of the biggest errors to avoid.
1. Claiming taxes that do not qualify
Not all foreign taxes qualify for the Foreign Tax Credit. In general, the tax must be an income tax or a tax in place of an income tax.
2. Using the wrong income category
Foreign wages and foreign dividends are not always reported in the same category. Mixing income categories can lead to an incorrect credit calculation.
3. Forgetting to file a separate Form 1116
If you have more than one category of foreign income, you may need more than one Form 1116.
4. Claiming credit on excluded income
If you use the Foreign Earned Income Exclusion, you generally cannot also claim the Foreign Tax Credit on the same excluded income. The IRS states that if you exclude foreign earned income or housing amounts, you cannot claim a foreign tax credit for taxes on the excluded income.
5. Not tracking carryovers
Unused foreign tax credits can be valuable, but they must be tracked properly.
6. Using incorrect exchange rates
Foreign income and foreign tax must be converted into U.S. dollars correctly.
7. Ignoring Schedule B
If you have carryovers, Schedule B may be required. The IRS instructions specifically state that Schedule B should be attached for applicable income categories when prior-year or current-year carryovers are involved.
How to report foreign dividends on Form 1116
Foreign dividends are usually reported as passive category income on Form 1116.
To report foreign dividends:
- Report the dividend income on your U.S. tax return.
- Identify the foreign tax withheld from your dividend statement or brokerage report.
- Classify the income as passive category income.
- Enter the foreign-source dividend income in Part I of Form 1116.
- Enter the foreign tax withheld in Part II.
- Apply any required adjustments for qualified dividends or capital gains.
Foreign dividends can be tricky because qualified dividends may be taxed at reduced U.S. rates, which can affect the calculation of the Foreign Tax Credit.
Frequently asked questions
What records should I keep for Form 1116?
You should keep records that prove both your foreign income and the foreign taxes paid or accrued.
Keep documents such as:
- foreign tax returns;
- foreign tax assessments;
- proof of tax payments;
- payslips;
- employer tax statements;
- dividend statements;
- brokerage statements;
- bank statements;
- exchange rate records;
- prior-year Forms 1116;
- Schedule B carryover records.
Good records are important in case the IRS asks for proof of your Foreign Tax Credit claim.
Do I need to file this form if I don’t owe US tax?
Can I e-file Form 1116?
Do I need to attach any documents to Form 1116?
Can I file Form 1116 without foreign income?
What is the limitation formula for the Foreign Tax Credit?
Should I use a dedicated tax firm for my expat tax filing?
Should you claim FTC or FEIE? Use our free calculator to find out.
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Rose-ann De Villa, IRS Enrolled Agent and CPA, brings 15 years of expat tax expertise in US tax preparation, planning, and advisory for Americans and Green Card holders in the UK.
Rose-ann has been mentioned in the Daily Express UK news wherein she talked about Stimulus payments and Child Tax Credit refunds for US expats in the UK.
