Can I offset tax I paid in another country against my US tax?

Checked on 2026-10-25

Often, yes. If you paid or accrued foreign income tax on income that the US also taxes, the IRS says you can take either a foreign tax credit, which reduces your US tax, or an itemized deduction. Individuals claim the credit on Form 1116. Generally only income, war profits and excess profits taxes qualify.

Key facts

What	IRS guidance says	Source
When it applies	You paid or accrued foreign taxes to a foreign country or US possession and are subject to US tax on the same income	IRS, Foreign tax credit
Your two options	A credit (reduces your US tax) or an itemized deduction (reduces your taxable income)	IRS, Foreign tax credit
Which is usually better	“In most cases” the credit, according to the IRS	IRS, Foreign tax credit
Which taxes qualify	Only taxes imposed on you; generally income, war profits and excess profits taxes	IRS, Foreign tax credit
How to claim	Form 1116 for individuals; the deduction goes on Schedule A (Form 1040)	IRS, Foreign tax credit
Excluded income	No credit for tax on income you exclude under the foreign earned income or foreign housing exclusion	IRS, Foreign tax credit
Treaty-reduced rate	Only the reduced treaty rate of foreign tax qualifies, not what was actually withheld	IRS, Foreign tax credit

Credit or deduction

The IRS says that if you paid foreign tax on income the US also taxes, you can either take a credit or itemize a deduction. A deduction reduces your US taxable income; a credit reduces your US tax liability directly. The IRS says that in most cases the credit is to your advantage. Individuals file Form 1116 to claim it.

What doesn’t qualify

The IRS limits the credit to foreign taxes imposed on you, generally income, war profits and excess profits taxes. If a tax treaty entitles you to a lower foreign rate, only that lower amount counts; whether to ask the other country to refund the excess is up to you. Income you exclude from US income, for example under the foreign earned income exclusion, can’t also carry a credit.

If a foreign tax is later changed (a “foreign tax redetermination”), the IRS says you usually must redetermine your US tax, generally on Form 1040-X, and failing to notify the IRS can lead to a penalty.
The IRS points to Publication 514 (Foreign Tax Credit for Individuals) and Publication 901 (U.S. Tax Treaties) for details.

Sources

IRS: Foreign tax credit checked 2026-10-25

Change history

2026-10-25: Page created

This is general information, not legal advice, and Lumen is not a law firm. Rules change and offices differ: check the official sources above before you act. Found something wrong or out of date? Write to support@lumen.observer.