How to Find Out if Your Foreign Tax Qualifies for an IRS Credit

The Internal Revenue Service has published an article to help you determine whether foreign taxes you pay qualify for the Foreign Tax Credit.  They list four criteria for you to evaluate the taxes you paid outside the United States. In brief, they are:

  1. The tax must be imposed on you
  2. You must have paid or accrued the tax
  3. The tax must be the legal and actual foreign tax liability
  4. The tax must be an income tax (or a tax in lieu of an income tax)

You can read more detailed explanations of these criteria in the original article.

The IRS also summarized foreign taxes that are not eligible for the credit:

  • Taxes on excluded income (such as the foreign earned income exclusion),
  • Taxes for which you can only take an itemized deduction,
  • Taxes on foreign mineral income,
  • Taxes from international boycott operations,
  • A portion of taxes on combined foreign oil and gas income,
  • Taxes of U.S. persons controlling foreign corporations and partnerships who fail to file required information returns,
  • Taxes related to a foreign tax splitting event, and
  • Social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. For more information about these agreements, refer to Totalization Agreements.

IRS Publication 514, Foreign Tax Credit for Individuals, provides more information on this topic. You can also read the original IRS article here: https://www.irs.gov/Individuals/International-Taxpayers/What-Foreign-Taxes-Qualify-For-The-Foreign-Tax-Credit%3F

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