Foreign Tax Credit Estimator
The Foreign Tax Credit (FTC) is the primary mechanism to avoid double taxation when you earn income that is taxed by both the US and Canada. Claimed on Form 1116, the FTC provides a dollar-for-dollar credit against your US tax liability for qualifying foreign taxes paid.
FTC Limitation Formula:
(Foreign Source Income / Worldwide Income) × US Tax Liability = Maximum Credit
Your credit is the lesser of: the actual foreign tax paid (converted to USD) or the FTC limitation amount.
Enter Your Income and Tax Details
Income category
IRS annual average rate for 2024: 0.7353. 1 CAD = 0.7353 USD.
Foreign Tax Credit Calculation
Enter your income and tax details above to calculate your estimated Foreign Tax Credit.
General vs. Passive Income Baskets
The IRS requires foreign tax credits to be calculated separately for different "baskets" of income. You cannot use excess credits from one basket to offset taxes in another.
General Category
Employment income (W-2, T4), self-employment, business income. Most cross-border workers fall into this category.
Passive Category
Dividends, interest, rental income, capital gains, royalties. Requires separate Form 1116 calculation.
Credit vs. Deduction: Always Take the Credit
The IRS allows you to either credit or deduct foreign taxes paid. In nearly all cases, the credit (Form 1116) is more beneficial because it reduces your tax liability dollar-for-dollar, while a deduction (Schedule A) only reduces your taxable income. For example, at a 24% tax rate, a $1,000 credit saves you $1,000 in tax, but a $1,000 deduction only saves $240.
Frequently Asked Questions
What is the Foreign Tax Credit?
The Foreign Tax Credit (FTC) is a dollar-for-dollar credit on your US tax return for income taxes paid to a foreign country (such as Canada). It is claimed on Form 1116 and is designed to prevent double taxation when the same income is taxed by both the US and another country. The credit is limited to the amount of US tax attributable to your foreign-source income.
How is the FTC limitation calculated?
The FTC limitation formula is: (Foreign Source Taxable Income / Worldwide Taxable Income) × US Tax Liability. Your actual credit is the lesser of the foreign tax paid (converted to USD) or this limitation amount. If your foreign tax exceeds the limitation, the excess can be carried back 1 year or forward 10 years.
Should I take the Foreign Tax Credit or the Foreign Tax Deduction?
In nearly all cases, the Foreign Tax Credit (Form 1116) is more beneficial than the deduction (Schedule A). The credit reduces your tax liability dollar-for-dollar, while a deduction only reduces your taxable income. For example, at a 24% tax rate, a $1,000 credit saves $1,000 in tax, but a $1,000 deduction only saves $240.
What are FTC income baskets?
The IRS requires separate FTC calculations for different categories ("baskets") of income: General category (employment, business) and Passive category (dividends, interest, rental, capital gains). You cannot use excess credits from one basket to offset taxes in another. Each basket requires a separate Form 1116.
What exchange rate should I use for Form 1116?
For Form 1116, use the IRS annual average exchange rate for the tax year. For 2024, the rate is 1 CAD = 0.7353 USD. This rate is used to convert both the foreign-source income and the foreign taxes paid from Canadian dollars to US dollars. The IRS publishes these rates on irs.gov.