Updated October 2, 2026. Quick answer: If you own funds that pay foreign tax, you may not need Form 1116. The IRS lets you claim the foreign tax credit without it when all your foreign income is passive, it was all reported on a 1099-DIV or similar statement, and your total creditable foreign taxes are not more than $300 ($600 if married filing jointly). Above that, or if a condition fails, Form 1116 is the route.
Form lines read one part at a time: Form 3520 Part II.
Foreign tax credit (Form 1116) and alternative minimum tax (Form 6251) for 2025, read line by line: Form 1116 lines 15 to 19, Form 1116 lines 25 to 32 and Form 1116 line 35.
Schedule A and Schedule B (Form 1040) for 2025, read line by line: Schedule A lines 6 and 7, Schedule B lines 5 and 6 and Schedule B line 7.
Schedule 3 (Form 1040) for 2025, read line by line: Schedule 3 line 1 and Schedule 3 lines 13z, 14 and 15.
Related reading on this site: FBAR deadline 2027.
More IRS forms and schedules, read line by line: Form 8865 instructions, Form 8858 instructions and Form 1042-S instructions.
More IRS forms and schedules, read line by line: Form W-8BEN instructions.
The shareholder’s Schedule K-1 (Form 1120-S), boxes 13 to 19: Schedule K-1 boxes 14 and 15 and Schedule K-1 box 17 other codes.
The shareholder’s Schedule K-1 (Form 1120-S), read box by box: Schedule K-1 box 10.
The partner’s Schedule K-1 (Form 1065), read box by box: Schedule K-1 box 16 and Schedule K-1 box 21.
More IRS forms and schedules, read line by line: Form 5471 instructions and Form 8833 instructions.
The IRS form or worksheet behind this, read line by line: Schedule B instructions, Form 8621 instructions and Form 926 instructions.
The election to skip Form 1116
The instructions begin: “You may be able to claim the foreign tax credit without filing Form 1116.” “By making this election, the foreign tax credit limitation (lines 15 through 23 of the form) won’t apply to you.” “This election is available only if you meet all of the following conditions.”
The 2025 forms and instructions are the revision the IRS serves at the time this page was read (October 2, 2026), and they are the ones used for returns filed in 2026. A later revision may renumber lines, so check the line numbers against the form you are holding.
The conditions
- “All of your foreign source gross income was “passive category income” (which includes most interest and dividends).”
- “All the income and any foreign taxes paid on it were reported to you on a qualified payee statement.”
- “Your total creditable foreign taxes aren’t more than $300 ($600 if married filing a joint return).”
The instructions add one limit: “This election isn’t available to estates or trusts.” The Form 1040 instructions for Schedule 3, line 1, list a holding-period condition as well: “You held the stock or bonds on which the dividends or interest were paid for at least 16 days and weren’t obligated to pay these amounts to someone else.” The dollar test is on your total, not per fund. Foreign tax from several funds is added together before comparing it with the limit.
Passive income, funds and the 1099-DIV
Mutual fund dividends sit in the passive category: “Passive income generally includes dividends, interest, royalties, rents, annuities”. Form 1116 itself has a shortcut for fund pass-through: “You don’t need to report income passed through from a mutual fund or other RIC on a country-by-country basis.” “Enter “RIC” on line i.”
Foreign tax reported in dollars is easier to use: “If foreign tax paid on passive income is reported to you in U.S. dollars on a Form 1099-DIV, 1099-INT, or similar statement, you don’t have to convert the amount shown into foreign currency.” The box 7 foreign tax line is explained on the 1099-DIV box 7 page.
How the election is claimed
No Form 1116 is attached. The instruction is: “To make the election, just enter on the foreign tax credit line of your tax return (for example, Schedule 3 (Form 1040), Part I, line 1) the smaller of (a) your total foreign tax, or (b) your regular tax.” Credit and deduction are alternatives: “Generally, if you take the credit for any eligible foreign taxes, you can’t take any part of that year’s foreign taxes as a deduction.”
When Form 1116 is needed
The form is the default when the election does not apply: “File Form 1116 to claim the foreign tax credit if the election, earlier, doesn’t apply and:” “You paid or accrued certain foreign taxes to a foreign country or U.S. territory.”
Not every dollar withheld abroad counts. One of the listed exclusions: “Foreign taxes withheld on a dividend from a corporation, if you haven’t held the stock for at least 16 days within the 31-day period that begins 15 days before the ex-dividend date.” Foreign tax also cannot reduce the net investment income tax; see the NIIT page.
| Item | Election without Form 1116 | Form 1116 |
|---|---|---|
| Foreign income | Passive category only | Not limited by the election test |
| Reporting | All reported on a qualified payee statement | Not limited by the election test |
| Total creditable foreign tax | $300, or $600 on a joint return, at most | Not limited by the election test |
| Limitation lines 15 through 23 | Do not apply | Apply |
| Estates and trusts | Not available | Form 1116 |
Carryback and carryforward
When Form 1116 is used, unused credit is not lost at once: “You can carry back 1 year and then forward 10 years any foreign tax you paid or accrued to any foreign country or U.S. territory (reduced as described under Line 12, later) on income in a separate category that is more than the limitation.” “The carryback-carryforward period can’t be extended even if you are unable to take a credit in 1 of the intervening years.”
Carrying back means amending: “File Form 1040-X or other amended return and a revised Form 1116 for the earlier tax year to which you are carrying back excess foreign taxes.” Using the election changes this: “The carryback-carryforward period isn’t extended if you are unable to use a carryback or carryforward because you made the election.”
Every Form 1116 line and part page in one table
Each row links to the page that reads a line, group of lines or part of Form 1116. The right column is the summary each page carries.
| Page | What it covers |
|---|---|
| Form 1116 Category of Income Boxes and Line i (2025) | How to pick the category box (a to h) and enter the country on line i of Form 1116 for the 2025 return, with the IRS’s own wording for each category. |
| Form 1116 Lines 1a and 1b: Foreign Gross Income (2025) | What goes on Form 1116 line 1a and when to check the line 1b box on the 2025 return, using the IRS instructions’ own wording. |
| Form 1116 Lines 2 to 5: Deductions, Expenses and Losses | How Form 1116 lines 2 to 5 reduce foreign gross income on the 2025 return: expenses, the pro rata share of other deductions, interest and losses. |
| Form 1116 Lines 6 and 7: Foreign Taxable Income or Loss | How Form 1116 line 6 totals deductions and line 7 subtracts them from line 1a on the 2025 return, using the form’s own captions. |
| Form 1116 Part II and Line 8: Foreign Taxes Paid (2025) | How to fill Form 1116 Part II and line 8 on the 2025 return: paid or accrued, currency, columns j to u, and the line 8 total. |
| Form 1116 Lines 9 to 14: Foreign Taxes Available (2025) | How to fill in Form 1116 lines 9 to 14 on the 2025 return: taxes from line 8, carryovers, reductions, the high tax kickout and the total available for credit. |
| Form 1116 Lines 15 to 19: The Limitation Fraction (2025) | How to fill in Form 1116 lines 15 to 19 on the 2025 return: foreign taxable income, adjustments, worldwide taxable income and the fraction on line 19. |
| Form 1116 Lines 20 to 24: Maximum Credit Per Category (2025) | How to fill in Form 1116 lines 20 to 24 on the 2025 return: U.S. tax, the maximum credit, the section 960(c) increase and the smaller of lines 14 and 23. |
| Form 1116 Lines 25 to 32: Part IV Summary (2025 Return) | How to fill in Form 1116 Part IV lines 25 to 32 on the 2025 return: one credit line per category, which Form 1116 to use as the summary and the line 32 total. |
| Form 1116 Lines 33 to 35: Foreign Tax Credit (2025 Return) | How to fill in Form 1116 lines 33 to 35 on the 2025 return: the smaller of lines 20 and 32, the boycott reduction and the final foreign tax credit. |
Common mistakes
- Checking each fund’s foreign tax against the limit separately. The limit applies to total creditable foreign taxes.
- Using the election when a qualified payee statement does not cover all of the foreign income.
- Expecting an election year to extend a carryback or carryforward period. The instructions say the period is not extended.
Related: 1099-DIV box 7 foreign tax, 1099-INT foreign tax boxes, foreign tax credit and the NIIT, and Form 8960.
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Answer againSources
- Instructions for Form 1116 (2025): https://www.irs.gov/pub/irs-pdf/i1116.pdf
- 2025 Instructions for Form 1040: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
Read from the IRS documents linked above on October 2, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.