The Form 1116 AMT Foreign Tax Credit: Why Yours Can Shrink Under the 2026 AMT Reset

Most Americans in the UK with employment income never owe US tax, because UK income tax is higher than US tax and the Foreign Tax Credit (FTC) wipes out the US liability. That remains true for most people in 2026. But the credit has a shadow: the Alternative Minimum Tax (AMT) runs its own version of the same calculation, and for higher earners the AMT version can be smaller than the regular one — leaving a US bill where none was expected.

Short answer

Form 1116 is completed twice for anyone exposed to the AMT: once for regular tax and once on an AMT basis. The AMT foreign tax credit (AMTFTC) can offset all of your tentative minimum tax, but it is limited by the ratio of foreign-source income to total income as computed for AMT, which strips out some deductions and changes some sourcing. If the AMTFTC comes out lower than the regular FTC, the difference is US tax you actually pay. Changes effective for the 2026 tax year lower the income at which the AMT exemption starts to phase out, so more UK-based Americans will be running this calculation.

How the AMT works, briefly

AMT is a parallel tax with its own income definition (Alternative Minimum Taxable Income), a large exemption, and a flat 26%/28% rate. You pay the AMT only to the extent it exceeds your regular tax. For 2025 the exemption is $88,100 (single) and $137,000 (married filing jointly), phasing out above high income thresholds.

For 2026 the exemption rises to $90,100 (single) and $140,200 (joint), but the phase-out threshold drops to $500,000 (single) / $1,000,000 (joint), and the phase-out rate rises to 50 cents per dollar over the threshold. In practice, a couple with income above roughly $1 million, or a single filer above roughly $500,000, now loses their AMT exemption twice as fast as before — and AMT exposure begins earlier for people with large state-tax, incentive stock option, or foreign-sourcing adjustments.

Why the AMT credit can be smaller than the regular credit

Three things commonly reduce the AMTFTC relative to the regular FTC for a UK resident:

1. Different income base. AMTI adds back certain deductions and adjustments, which changes the fraction "foreign-source taxable income ÷ total taxable income" that caps the credit.
2. Category by category. The limitation is applied separately to the general (employment) and passive (investment) baskets on both the regular and AMT computations. A large UK salary with heavily taxed UK employment income and lightly taxed US investment income can leave excess credit in one basket and a shortfall in the other.
3. Exclusion interactions. If you claim the Foreign Earned Income Exclusion as well, the excluded income is removed from the numerator and the associated UK tax is disallowed, which can push the effective credit ratio down further under AMT.

The AMTFTC cannot exceed the tentative minimum tax, and unused AMTFTC carries forward under its own carry-over rules, separate from the regular FTC carry-forward.

The simplified limitation election

Taxpayers may elect the simplified AMT foreign tax credit limitation, which lets you use the regular-tax foreign-source income figure in the AMT limitation fraction instead of recomputing it on an AMT basis. It removes a layer of recalculation and often produces a better result. The catch: it must be made in the first year you claim an AMTFTC, and once made it applies to all later years unless the IRS consents to a revocation. Whether to make it is a decision for the first Form 1116 you file, not something to fix later.

Who should pay attention in 2026

• UK-resident US persons with total income above roughly $500,000 (single) or $1,000,000 (joint), where the faster phase-out bites.
• Anyone exercising incentive stock options or with large long-term capital gains alongside UK salary.
• People combining the FEIE with the FTC.
• Anyone who has never checked whether Form 6251 (AMT) was completed on prior returns — a common gap in self-prepared expat returns.

Key points

• Form 1116 is run twice when AMT applies: regular and AMT. The smaller credit determines whether US tax is due.
• 2025 AMT exemption: $88,100 single / $137,000 joint. 2026: $90,100 / $140,200, phasing out from $500,000 / $1,000,000 at 50 cents per dollar.
• The simplified limitation election must be made in the first AMTFTC year.
• Basket-by-basket limitation means salary credits cannot rescue investment income, and vice versa.

Sources

• IRS — Foreign Tax Credit
• IRS — About Form 1116
• IRS — About Form 6251, Alternative Minimum Tax
• IRS — Topic 556, Alternative Minimum Tax