WELCOME TO THE IRS'S INTERNATIONAL INDIVIDUAL TAXPAYERS ASSISTANCE VIDEO SERIES. DO YOU KNOW THAT IF YOU PAID TAX TO A FOREIGN COUNTRY, YOU MAY BE ABLE TO CLAIM A FOREIGN TAX CREDIT? LEARN THE STEPS TO DETERMINE IF YOU CAN CLAIM THE FOREIGN TAX YOU PAID AS A CREDIT ON YOUR FEDERAL INCOME TAX RETURN. STEP ONE: DID YOU PAY OR ACCRUE TAX TO A FOREIGN COUNTRY? IN MOST CASES, YOU CAN CLAIM THE CREDIT ONLY IF YOU PAID OR ACCRUED THE TAX TO A FOREIGN COUNTRY OR U.S. POSSESSION. IN SOME CASES, YOU CAN CLAIM THE CREDIT EVEN IF YOU DID NOT DIRECTLY PAY OR ACCRUE THE TAX YOURSELF. FOR EXAMPLE, IF YOU FILE A JOINT INCOME TAX RETURN, YOU CAN CLAIM THE CREDIT BASED ON THE TOTAL FOREIGN INCOME TAXES PAID OR ACCRUED BY YOU AND YOUR SPOUSE. REFER TO PUBLICATION 514, FOREIGN TAX CREDIT FOR INDIVIDUALS. YOU CAN GET IT BY GOING TO IRS.GOV AND TYPING PUB 514 IN THE SEARCH BOX. IF YOU DID NOT PAY OR ACCRUE TAX TO A FOREIGN COUNTRY, YOU ARE NOT QUALIFIED FOR THE FOREIGN TAX CREDIT. BUT IF YOU ANSWERED "YES", MOVE ON TO STEP TWO. WERE YOU THE ONE LEGALLY LIABLE FOR THE TAX? YOU CAN CLAIM A CREDIT ONLY IF YOU HAVE THE LEGAL LIABILITY FOR THE FOREIGN TAXES YOU PAID. FOR EXAMPLE, A TAX THAT IS DEDUCTED FROM YOUR WAGES QUALIFIES AS A TAX YOU WERE LEGALLY LIABLE FOR. IF YOU ANSWERED "YES," NOW MOVE ON TO STEP THREE. ASK YOURSELF IF IT WAS AN ACTUAL FOREIGN TAX LIABILITY. YOU CANNOT TAKE A FOREIGN TAX CREDIT IF IT IS REASONABLY CERTAIN YOU WILL GET THE AMOUNT BACK AS A REFUND, CREDIT, REBATE OR OTHER PAYMENT, IF YOU MADE A CLAIM. FOR EXAMPLE, IF YOU EARNED 100 DOLLARS OF INTEREST INCOME FROM A FOREIGN BANK, THE BANK MAY HAVE WITHHELD 30 DOLLARS AS FOREIGN TAX. HOWEVER, BASED ON THE U. S. TAX TREATY WITH THE FOREIGN COUNTRY, YOU CAN CLAIM A REFUND IN THE AMOUNT OF 20 DOLLARS. THEREFORE, YOUR ACTUAL FOREIGN TAX LIABILITY IS 10 DOLLARS, AND NOT THE 30 DOLLARS THE BANK WITHHELD. IF YOU ANSWERED "YES", THE TAX WAS AN ACTUAL FOREIGN TAX LIABILITY, CONTINUE WITH STEP FOUR: WAS THE FOREIGN TAX AN INCOME TAX OR A TAX IN LIEU OF AN INCOME TAX? EXAMPLES INCLUDE THE FOLLOWING. WITHHOLDING TAX ON YOUR WAGES EARNED ABROAD IS AN INCOME TAX. A FOREIGN TAX IMPOSED ON GROSS INCOME, GROSS RECEIPTS OR SALES, OR THE NUMBER OF UNITS PRODUCED OR EXPORTED IS A TAX IN LIEU OF AN INCOME TAX. THE VALUE ADDED TAX, OR VAT, YOU PAID ON ITEMS YOU PURCHASED IS NOT AN INCOME TAX OR A TAX IN LIEU OF AN INCOME TAX. IF YOU ANSWERED NO TO ANY OF THE PREVIOUS FOUR QUESTIONS, STOP, BECAUSE YOU GENERALLY CANNOT CLAIM A FOREIGN TAX CREDIT. PLEASE REFER TO PUBLICATION 514 AND THE INSTRUCTIONS FOR FORM 1116, FOREIGN TAX CREDIT. BACK TO OUR SERIES OF QUESTIONS: IF YOU ANSWERED YES, THE FOREIGN TAX WAS AN INCOME TAX OR TAX PAID IN LIEU OF AN INCOME TAX, CONTINUE WITH THIS LAST STEP. DID YOU CLAIM THE FOREIGN EARNED INCOME EXCLUSION OR THE FOREIGN HOUSING EXCLUSION ON ANY PART OF THE QUALIFYING FOREIGN INCOME? REFER TO PUBLICATION 54, TAX GUIDE FOR US CITIZENS AND RESIDENT ALIENS ABROAD, FOR MORE INFORMATION ON THE FOREIGN EARNED INCOME EXCLUSION AND FOREIGN HOUSING EXCLUSION. DID YOU ANSWER "YES" TO THE FIRST FOUR QUESTIONS? DID YOU PAY OR ACCRUE TAX TO A FOREIGN COUNTRY? WERE YOU LEGALLY LIABLE FOR FOREIGN TAX? WAS IT AN ACTUAL FOREIGN TAX LIABILITY AND WAS IT INCOME TAX OR A TAX IN LIEU OF AN INCOME TAX? AND "NO" YOU DIDN'T CLAIM FOREIGN EARNED INCOME EXCLUSION OR FOREIGN HOUSING EXCLUSION, THEN YOU GENERALLY CAN CLAIM THE FOREIGN TAX CREDIT. ALTHOUGH YOU MAY QUALIFY TO CLAIM A FOREIGN TAX CREDIT, THE AMOUNT YOU CAN CLAIM MAY BE LIMITED. YOUR FOREIGN TAX CREDIT CANNOT BE MORE THAN THE TOTAL U.S. TAX LIABILITY ON YOUR FOREIGN TAXABLE INCOME. TO FIGURE IT, TAKE YOUR TAXABLE INCOME FROM SOURCES OUTSIDE THE UNITED STATES AND DIVIDE IT BY YOUR TOTAL TAXABLE INCOME FROM U.S. AND FOREIGN SOURCES. THEN, MULTIPLE THAT NUMBER BY YOUR TOTAL U.S. TAX LIABILITY. ANY AMOUNT IN EXCESS OF THE ALLOWED FOREIGN TAX CREDIT AMOUNT CAN BE CARRIED FORWARD TO FUTURE YEARS. CONSULT PUBLICATION 514 AND THE INSTRUCTIONS FOR FORM 1116 FOR MORE INFORMATION. NOW, IF YOU ANSWERED "YES" TO THE PREVIOUS QUESTIONS AND YOU ALSO CLAIMED EITHER THE FOREIGN EARNED INCOME OR HOUSING EXCLUSION, THEN YOU CANNOT TAKE A CREDIT ON FOREIGN TAX PAID OR ACCRUED ON THIS EXCLUDED INCOME. FOR MORE INFORMATION AND EXAMPLES, SEE THE SECTION TITLED TAXES ON EXCLUDED INCOME IN PUBLICATION 514. AND FOR ADDITIONAL INFORMATION OVERALL, GO TO IRS.GOV AND TYPE "INTERNATIONAL TAXPAYERS" IN THE SEARCH BOX.
