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Foreign Tax Credit

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Level 2

This is my first form 1116.  TP has Canada income.  When I put in the Canadian wages and taxes collected it calculated the maximum foreign tax credit which is about 1/2 of the taxes paid.   Is this normal?  I figured tp would get the full credit paid in.  It shows they still owe tax.

Also, it is showing a tax credit carryover to 2020 for the difference.  

Thanks in Advance!   Have a great weekend!

 

 

 

 

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3 Replies 3
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Level 11

What that indicates is that Canada's tax rate, for this taxpayer, is about twice what the U.S. tax rate is.  That's not really the case, but a lot of things that are paid by Canada from income taxes is paid by the U.S. with FICA taxes, against which no credit is allowed.   It's like an Illinois taxpayer with California income -- Illinois will only allow a credit in an amount equal to its (lower rate) tax on it.  

There may be rare cases where that carryover can be used, but I don't think I have seen one.  

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Level 15

As Bob said, your result is typical. Since it is your first 1116, I would go over it line by line to verify the numbers and so that you understand the calculation. BTW I do this on all 1116s since it is very easy to incorrectly input things or allow the software to default to something that is incorrect.


ex-AllStar
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Level 10

Hey donkey, welcome to the new forum!

Does the TP not qualify for the foreign earned income exclusion?  If it was just a short-term job in Canada then probably not but I'd rather ask than assume.  If you can qualify, the FEIE will probably yield better results.  If you've never done an 1116 you've probably never done a 2555 either. 🙂

Rick

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