US Foreign Tax Credit Calculator

You do not simply credit whatever foreign tax you paid. The credit is capped by the section 904 limitation, which is your US tax before credits multiplied by the fraction of your taxable income that is foreign-sourced. If your US tax is $30,000 and three-quarters of your taxable income is foreign, your ceiling is $22,500 — even if you paid $40,000 of UK tax. You claim the lower of the foreign tax paid and that ceiling, and the rest becomes carryover.

There is no fixed dollar cap. The limit is proportional: the credit in any basket can never exceed the US tax attributable to that basket of foreign income. That is why Americans in a high-tax country like the UK routinely generate more foreign tax than they can use in a single year. The formula is US tax before credits × (foreign source taxable income ÷ total taxable income), computed separately for each income category.

Usually yes. There is a de minimis exception: if your creditable foreign taxes are $300 or less ($600 if married filing jointly), the income is passive, and it was reported to you on a payee statement such as a 1099, you can claim the credit directly on Form 1040 without Form 1116. Above those amounts, or for any general-category income such as salary, Form 1116 is required. See the [IRS Form 1116 instructions](https://www.irs.gov/instructions/i1116).

Unused foreign tax credits carry back one year and forward ten years. The carryforward is tracked on Schedule B of Form 1116. Crucially, the credit expires permanently at the end of the tenth year — if you have not generated enough US tax on foreign income in that basket by then, the credit is simply lost. Many Americans in the UK accumulate carryover they never use, which is why planning around it matters.

No, and this is the most common misunderstanding. Carryover is ring-fenced to the basket it arose in. Excess general-category credit from your UK salary cannot offset US tax on passive dividends, and vice versa. You track and apply each basket separately. This is also why a large general-basket carryover does nothing to help you with, say, US tax on investment income — a situation many expats only discover when the bill arrives.

For Americans in the UK, usually yes. UK effective rates are typically higher than US rates, so the credit generally wipes out the US liability entirely and leaves carryover in reserve. The exclusion caps out at a fixed amount and does not help with income above it, nor with investment income. The credit also preserves earned income for purposes such as IRA contributions. Compare both on our [FEIE calculator](/resources/calculators/us-foreign-earned-income-exclusion).

Yes, but not on the same dollars. If you exclude income under the Foreign Earned Income Exclusion, you cannot also credit the foreign tax paid on that excluded income — you must reduce your creditable taxes proportionately. In practice you can exclude your salary up to the limit and credit the foreign tax on income above it. Getting the allocation wrong is one of the most common errors on expat returns.

UK income tax and UK capital gains tax are creditable income taxes. UK National Insurance contributions are not creditable as income taxes — they are covered instead by the US/UK Totalization Agreement, which prevents double social security charges. VAT, council tax, and stamp duty are not creditable either. Only taxes that are income taxes in the US sense, and that are compulsory and final, qualify.

You elect either the cash (paid) or accrual method, and the choice matters for cross-border timing. The UK tax year runs to 5 April while the US year ends 31 December, so cash-basis reporting can push UK tax into a different US year from the income it relates to — creating a mismatch where you have income in one year and the credit in another. Once you elect the accrual method it binds you for future years.

Generally you use the exchange rate on the date you paid the tax. If you elected the accrual method, you may use an average rate for the year. The IRS accepts any consistently applied, reasonable published rate; it does not mandate one source. Keep the rate and its source in your records, because a change in exchange rates alone can move you between having excess credit and having a shortfall.

Almost always because of the limitation or the baskets. Even with plenty of UK tax paid, your credit is capped at the US tax on foreign income — so US-sourced income, or income in a different basket, remains taxable. The Net Investment Income Tax is a further trap: it is a separate 3.8% charge and foreign tax credits generally cannot be used against it at all, so UK tax on your investments does not shelter you from it.

No. The NIIT is imposed under a different chapter of the code, and the foreign tax credit generally cannot be applied against it. This catches out high earners in the UK who assume their substantial UK tax covers everything — they can face a 3.8% US charge on investment income despite paying far more tax in the UK. See our guide to [NIIT for expats](/resources/blog/us-niit-net-investment-income-tax-expats).

A separate income category with its own limitation computation. The two most relevant for individuals are the general category — salary, self-employment and active business profits — and the passive category, covering dividends, interest, rents and royalties. There are further categories for certain foreign branch income and treaty-resourced income. You file a separate Form 1116 for each basket you have income in.

You can switch, but revoking the Foreign Earned Income Exclusion has consequences: once revoked, you generally cannot claim it again for five tax years without IRS consent. Switching from the credit to the exclusion is easier than the reverse. Because the choice compounds over a decade of carryover, it should be modelled over several years rather than picked one return at a time.

No. US citizenship-based taxation means dual citizens file a US return on worldwide income regardless of where they live or how long they have been abroad. The US/UK treaty and the foreign tax credit prevent most double taxation, but they do not remove the filing obligation, nor the separate FBAR and FATCA reporting. Dual citizens who have never filed can usually regularise through the Streamlined procedures.

Unused foreign tax credit carryover generally has no value after expatriation, because you will no longer have US tax on foreign income to apply it against. Anyone considering renouncing should factor this in alongside the exit tax rules on Form 8854 — a large accumulated carryover is effectively written off, and in some cases accelerating income before expatriation to absorb it is worth modelling.

It applies the section 904 limitation formula exactly and models the one-year carryback and ten-year carryforward correctly within a single basket. It does not perform the allocation and apportionment of deductions to foreign source income, which can materially reduce the numerator on a real Form 1116, nor does it handle high-tax kickouts, treaty resourcing, or the alternative minimum tax version of the limitation. Treat it as a planning estimate rather than a filed computation.

The calculation runs entirely in your browser and nothing is stored unless you choose to download the branded PDF report, at which point you provide your name and email so we can send it. Phone and address are optional.

If you have carryover approaching its ten-year expiry, income in more than one basket, a mix of exclusion and credit, or NIIT exposure on top, the interactions are where real money is won and lost — and they compound across years. Book a free 20-minute call with a TaxStone adviser to review your UK and US positions together.