The Foreign Tax Credit is available if you paid taxes to a foreign country on foreign-source income and are subject to U.S. tax on the same income. This credit is intended to relieve taxpayers of a double tax burden. Generally, you must be a U.S. citizen or resident alien to take the credit.
Foreign taxes qualify for the credit if:
- The tax is imposed on you,
- You have paid or accrued the tax,
- The tax is the legal and actual foreign tax liability, and
- The tax is an income tax (or a tax in lieu of an income tax).
Alternatively, you can choose to claim an itemized deduction on Schedule A for the foreign tax paid OR you may exclude up to $92,900 of the foreign earned income from your taxable income using Form 2555. See Foreign Earned Income Exclusion and Foreign Tax Credit (or Deduction) for more information and instructions for entering the credit, deduction, or exclusion information in TaxACT.