Form 1116
The form that claims the foreign tax credit — six categories, one limitation, and a carryover that only exists if you file Schedule B.
Every rate on this page is cited to the treaty article that authorises it. Treaty texts last read September 21, 2026.
- Check the skip test first. Four conditions, all cumulative. A large share of ordinary investors meet them and never need this form.
- One form per category. A foreign salary and a foreign dividend means two Forms 1116 — general and passive — because the limitation is computed separately for each.
- Six categories, not seven. The lump-sum distribution people count as a seventh is a separate computation under section 904(b)(3), not a category.
- The step most returns get wrong is in Part I: a share of your deductions, including the standard deduction, is apportioned against foreign income and shrinks your ceiling.
- Part IV is required even with one form, and Schedule B is the only proof your carryover exists.
First: can you skip the form?
If all four of these are true, claim the credit directly on your return and stop reading this page.
Section 904(j) exists precisely so that an investor with a few hundred dollars of withheld foreign tax on an international fund is not made to compute a limitation. The conditions are cumulative — all four, not any of them:
Qualifying? Enter the smaller of your total foreign tax or your regular tax on the foreign tax credit line of your return. What you give up is the carryover — elect out and any excess for that year goes nowhere. If your foreign tax is near the ceiling and you expect more next year, filing the full form is usually worth the hour.
Source: 26 U.S.C. § 904 — Limitation on credit — IRC § 904(j)(2). Read 2026-09-21.The six categories, and why they matter
The category decides which limitation your foreign tax is measured against — and you file a separate form for each one you have.
Part I opens with six checkboxes, and ticking the wrong one is not a cosmetic error. The limitation is computed per category, so putting passive income in the general basket changes the ceiling and therefore the credit.
| Box | Category | What belongs here | Who ticks it |
|---|---|---|---|
| a | Section 951A category income | GILTI — global intangible low-taxed income included from a controlled foreign corporation. | US shareholders of a controlled foreign corporation. Almost never an individual employee or investor. |
| b | Foreign branch category income | Business profits of a qualified business unit carried on outside the United States. | Someone running an actual trade or business through a foreign branch. |
| c | Passive category income | Dividends, interest, royalties, annuities and most capital gains. | The overwhelming majority of individuals. If a foreign broker or fund withheld tax from you, this is your box. |
| d | General category income | Everything not in another category — most importantly, wages and active business income. | Anyone taxed abroad on a salary. This is the second most common box, and the one that disqualifies people from the $300 election. |
| e | Section 901(j) income | Income from a country the United States has sanctioned, for which the credit is denied. | Rare. The point of the box is to segregate income whose tax is not creditable. |
| f | Certain income re-sourced by treaty | US source income that a treaty allows you to treat as foreign source so that a credit can reach it. | The box that connects this form to the rest of this cluster — and the one that usually requires a Form 8833 disclosure. |
Use a separate Form 1116 to figure the credit for each category of foreign source income. Two categories means two Forms 1116. The limitation is computed separately for each, which is the whole reason the categories exist.
For most individuals the answer is box c or box d, and the difference between them decides whether the $300 shortcut above is available. Dividends, interest and royalties are passive. A salary is general — so foreign tax on wages never qualifies for the shortcut, however small.
Source: IRS — Instructions for Form 1116. Read 2026-09-21.The form, part by part
Part I builds the numerator, Part II records what you paid, Part III applies the limitation, Part IV adds up your forms.
Line numbers move between revisions of the form in a way part names do not, so work from the parts and check the line references against the revision you are actually filing.
The limitation calculation, with numbers
Foreign source taxable income ÷ total taxable income × US tax before the credit. Your credit is the lesser of that and the tax available.
Credit limit = US tax before the credit × (foreign source taxable income ÷ total taxable income). Here it is on a real set of figures — the middle case from the foreign tax credit page, so the two agree by construction:
| Where it lands on the form | Figure |
|---|---|
| Part I, line 8 — foreign source taxable income | $20,000 |
| Part III, line 18 — total taxable income | $100,000 |
| The fraction | $20,000 ÷ $100,000 = 20% |
| Part III, line 20 — US tax before the credit | $16,000 |
| Line 23 — the limitation | 20% × $16,000 = $3,200.00 |
| Part II, line 9 — foreign tax paid | $5,000 |
| Line 24 — credit this year | $3,200.00 |
| To Schedule B — excess carried | $1,800.00 |
$5,000 of foreign tax produced $3,200.00 of credit, because the ceiling — not the tax paid — decided it. The $1,800.00 difference is not lost; it goes back 1 year and forward 10, and Schedule B is what keeps it alive.
Schedule B and your carryover
Schedule B is the only running record that your carryover exists. File it every year you have one.
Schedule B reconciles your prior-year foreign tax carryover with your current-year carryover. It is the only running record that a carryover exists. Skip it in a quiet year and the carryover has no evidence behind it a decade later.
Two habits make a carryover survive. First, file Schedule B in the year the excess arises and in every year afterwards until it is used or expires — including years you claim no credit at all, when it feels pointless. Second, keep the category straight: an excess in the passive category can only ever be used against a future passive limitation. A carryover recorded in the wrong basket is a carryover you cannot use.
Where returns go wrong
Four recurring errors, in the order a preparer usually finds them.
- Not apportioning deductions in Part I. Lines 3a–3f push a share of your deductions — including the standard deduction — against foreign income. Leaving them blank inflates the numerator, the ceiling and the credit, and it is the single most common overstatement on the form.
- One form for two categories. A foreign salary and a foreign dividend are general and passive respectively and need separate forms. Combining them produces one limitation where the law requires two.
- Skipping Part IV on a single form. It reads like a multi-form summary and is required regardless.
- Crediting tax on excluded income. If you took the foreign earned income exclusion, the foreign tax on the excluded slice is not creditable. Claiming both on the same income is double relief and the statute forbids it — see the foreign tax credit page.
A fifth, less common but expensive: electing the accrued method rather than paid in Part II. It is available, it can be the better answer, and it binds every later year once made.
Frequently asked questions
Do I have to file Form 1116?
Do I need a separate Form 1116 for each category of income?
How many categories are there on Form 1116?
How is the Form 1116 limitation calculated?
What is Schedule B of Form 1116 for?
Can I carry forward unused foreign tax credit on Form 1116?
Which Form 1116 box do I tick for a foreign salary?
What is treaty re-sourced income on Form 1116?
Sources
- Instructions for Form 1116 — the parts, the six categories, Schedule B, and the conditions on the no-form election.
- 26 U.S.C. § 904 — the limitation, the carryback and carryover, and the $300/$600 election.
- IRS Publication 514 — the credit-versus-deduction election and the exclusion bar.
Line numbers are as the current instructions number them and do move between revisions — check them against the form you are filing. This page explains the computation; it is not advice on your return. Start with the federal tax calculator for your US tax before the credit, and take a multi-category limitation to a preparer who handles foreign income.
Related
Every rate and article on this page is cited to the treaty text it comes from, so you or your accountant can check it. Treaty provisions turn on facts we do not know about you — residency, beneficial ownership, limitation-on-benefits conditions and the savings clause can all change the answer. Read the article before you rely on the number, and take advice on anything material.