[Updated on January 16, 2023 with updated screenshots from TurboTax for 2022 tax filing.]
When mutual funds and/or ETFs that invest in foreign countries receive dividends or interest, they have to pay taxes to those countries. These mutual funds and/or ETFs report to your broker after the end of the year how much they paid in foreign taxes on your behalf.
When you invest in these mutual funds and/or ETFs in a regular taxable brokerage account, your broker will report to you the total foreign taxes you paid through all your funds and/or ETFs. The IRS allows a tax credit for the taxes you paid indirectly to foreign countries.
The foreign taxes paid is reported in Box 7 on the 1099-DIV form you receive from your broker. It’s easy to handle when the total foreign taxes paid from all your 1099-DIV forms is no more than a certain amount — $300 for single and $600 for married filing jointly. You enter the 1099-DIV forms into your tax software and the software will automatically put the total on your tax form (Schedule 3, Line 1).
When your total foreign taxes paid from all your 1099-DIV forms are over the $300/$600 threshold, you’ll need to include Form 1116 in your tax return. It’s a complicated form. I’ll show you how to do this in TurboTax.
If you use other tax software, please read:
Use TurboTax Download
The screenshots below came from TurboTax Deluxe downloaded software. The downloaded software is way better than online software because it’s both less expensive and more powerful. If you haven’t paid for your TurboTax Online filing yet, you can buy TurboTax download from Amazon, Costco, Walmart, and many other places and switch from TurboTax Online to TurboTax download (see instructions for how to make the switch from TurboTax).
I’ll use this simple scenario as an example:
You received a 1099-DIV from your broker. Box 7 “Foreign Tax Paid” on the 1099-DIV shows $700. 100% of this $700 came from a mutual fund or ETF. You only have this one 1099-DIV that has a number in Box 7.
If you imported your 1099’s, double-check that all the numbers from the import match your downloaded copy.
If you’re entering your 1099-DIV manually, you have to check a box on the 1099-DIV entry screen to reveal the additional input fields. Then you put the foreign tax paid number into Box 7.
We don’t have any of these uncommon situations.
After you’re done with one 1099-DIV, continue with your other 1099-DIV forms. We only have one 1099-DIV form in our example.
At a much later point, TurboTax will ask you about the foreign tax paid under Deductions & Credits -> Estimates and Other Taxes Paid -> Foreign Taxes.
After a brief introduction, the first question is whether you’d like to take a tax deduction or a tax credit. The “help you decide” popup says in general you’re better off taking the credit. So click on “Take a Credit.”
Next, TurboTax asks you which countries you received dividend income from. A small note says to select RIC for any income received from a mutual fund or other Regulated Investment Company. U.S.-based mutual funds and ETFs fall into this category.
RIC is the first item in the country dropdown.
Then you report income received from the country “RIC.” Click on “Report Income.”
Now you say foreign tax paid from which 1099-DIVs were paid to the country RIC. If all your foreign taxes paid were from mutual funds and/or ETFs, select all your 1099-DIV’s that have a number in Box 7.
TurboTax asks you how much of the dividend on your 1099-DIV was from foreign countries.
This information isn’t on the 1099-DIV itself. Your broker may have included supplemental information with the 1099-DIV. For instance, Fidelity provides the breakdown of total foreign income in its 1099 package.
TurboTax asks whether you’d like to review the 1099-DIV forms you entered before. We answer “No” here because we already entered the 1099-DIV forms correctly.
Simplified Limitation for AMT
Now it asks you about a “simplified foreign tax limitation election.” If this is the first year you encounter this, choose the first option.
TurboTax suggests you should elect the simplified method. Click on Elect Simplified Calculation.
If you used TurboTax last year and you already elected the simplified method, TurboTax reminds you that you should continue with the simplified method. Answer “Yes” here.
This is important but easy to miss. We gave the total foreign-source income in a previous screen but we didn’t get a chance to say how much of the income is from qualified dividends or long-term capital gains. It makes a difference.
Click on “No” to trigger more questions.
You find the total foreign-source qualified dividends and long-term capital gains from the 1099 supplemental materials from your broker.
Go with the default “Paid.”
By default all your above-the-line deductions are categorized as “not definitely related” to your foreign income. If you have a deduction that’s definitely related to your U.S. income, such as the deductible 1/2 of your self-employment tax when your self-employment is 100% U.S., enter it here as a negative number to back it out.
Continue clicking through and accept the default in many screens after this one.
Foreign Taxes Paid
We don’t have any carryover from previous years in our example. A carryover is created when you paid more in foreign tax than the tax credit you’re allowed. Your leftover foreign tax paid is first carried back to the previous year and then carried over to the following year.
After going through all these, we’re getting 100% credit for the $700 foreign tax paid. Woo-hoo!
Verify on Schedule 3
You can verify that you’re getting the foreign tax credit by clicking on Forms at the top right. Find Schedule 3 in the left navigation pane and look at the number on Line 1. You can also look at Form 1116. It looks awfully complicated.
Excess Foreign Tax Credit
We received 100% of the foreign taxes paid as a tax credit in our example. If you paid higher foreign taxes on a lower US income, you may not be able to take 100% of the credit. TurboTax will tell you that you’ll have to wait until next year to take a portion of the credit.
Carrying over part of the credit to the following year requires filing a Form 1116 Schedule B. TurboTax will automatically generate Schedule B when you need it.
TurboTax works when you paid more foreign taxes than the $300/$600 threshold that requires a Form 1116. You’ll have to gather the foreign income from the 1099 supplemental information from your brokers. After it’s all said and done, you’re getting a tax credit for taxes you paid to foreign countries through your mutual funds and/or ETFs.
Completing Form 1116 is complicated even with TurboTax. You’ll have a further complication in carryovers when you don’t get to use 100% of the credit. I try to avoid this situation by putting mutual funds and ETFs that invest in foreign countries in a tax-advantaged account. See Too Much Hassle in Claiming Foreign Tax Credit on IRS Form 1116.
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Raju Agrawal says
Very nice and clean example. I am using HRB but for me it is not giving the whole amount as credit. My Ireland Dividend is 2564 and the taxes are 641. HRB is calculating the credit of only $68. Its going thru the worksheets to calculate the number in field 3e to be only 28,552. Just curious why? sure, you probably need more numbers to answer… Using the standard deduction of 12,400. AGI is 70416.
Thanks – Raju
Harry Sit says
The general idea is that you’re allowed a credit only by your average U.S. tax rate. If a large part of your taxable income is qualified dividends and long-term capital gains, and you end up paying only $1,500 to the U.S., which is about 2.6% of your $58k taxable income, then you’re allowed a credit no more than 2.6% of your foreign income. The rest will be carried over to next year.
P Morein says
Brokerage firms report foreign dividend income differently in the supplemental information. Vanguard provides a nice explanation of the required adjustment for qualified foreign dividends. Schwab only includes total foreign income in the foreign supplemental information. You have to go to the detailed qualified dividend information to compute the foreign qualified dividends in order to adjust total foreign income.
I follow the turbo tax instruction. but I got an error. (missing qualified dividend info)
how to get qualified dividend information based on Schwab foreign supplemental information (only has dividends and tax paid)
Harry Sit says
See comment #2 above. Go to a different section in the supplemental information to find it.
Larry Roles says
Sounds like there is a huge problem with Turbo Tax (TT) this year with respect to claiming the foreign tax credit, resulting in the inability to e-file. Have you heard of this? See: https://ttlc.intuit.com/community/tax-credits-deductions/discussion/not-able-to-e-file-due-to-simplified-amt-foreign-tax-credit/00/2109133/page/2
I also did an internet search using the term “Federal e-file problems from AMT foreign tax credit reporting” and the only results I got related to intuit or TT.
Anyone hear of such problems with H&R block? I’m thinking of switching, but the complexity of their process, as shown, is off-putting
KANG CHIANG says
Need help for data input to 2020 TT premier section 1099 -Div & form 1116.
1. 1099-Div –
A. “Foreign Dividend Received”
what is the proper data put in the blank? – Total Foreign ordinary dividend(Fidelity), Foreign Income(Vanguard) OR Foreign Qualified Dividend (Fidelity) , QDI eligible foreign income( Vanguard).
B. TT skipped the “”Foreign Dividend Received” & I could not input the data for Vanguard and one of schwab accounts. Did you encounter the problem?
2. 1116 section
what is the Foreign resource income? foreign dividends or QDI dividends.
Do we have any way to verify the final data before TT print out the final form 1116.
Thank you for your help.
Harry Sit says
“Foreign dividend received” means just what it says – the total dividend you received from the international funds, regardless of whether it was qualified dividend or not. I’m not sure what you meant by “skipped” or “could not input.” The “foreign dividend received” number isn’t on the 1099-DIV itself. You find it on the supplemental information. If you imported the 1099-DIV, click on Edit and go through it again. If that still doesn’t work, delete the imported 1099-DIV and re-enter the 1099-DIV manually. The foreign-source income in the Form 1116 section is the same as the foreign dividends, regardless of whether it was qualified. The “Forms” button on the top right will display a list of forms on the left. You can look at the form before printing.
KANG CHIANG says
I. The “Skipped” means that it does not show the “Report Foreign Dividends” section, so I can not put the “Foreign Dividends Received” data in the “blank”. It happened three brokers to us.
(No problem with Other Brokerages)
1. Vanguard, 2. Robinhood, Schwab.(two accounts numbers – one works the other one skipped the section).
I have tried delete both Vanguard and Robinhood data and download the data again and also have tried to enter data manually in Vanguard and Robinhood. There are no “Report Foreign Dividends” section that I can not put the “Foreign Dividend received” data in the blank.
II. One more question “Foreign Dividend Received”.
What do I suppose to select
a)Mutual Fund/RIC, b) other source
if we have Foreign ETFs and Foreign company
I select other source. I hope it is correct for the TT software(TT should have three selection Mutual Funds/RIC + other source).
Thank you for your help.
Harry Sit says
Did those 1099-DIVs have foreign tax paid in box 7? Foreign dividend received is only relevant when you paid foreign tax from those accounts. This post only covers foreign tax paid from international mutual funds and ETFs (“RIC”). If you have direct holdings of foreign stocks, you add the respective countries under “Where did you receive dividend income from?”
Thanks for the blog post.
This year TT will not let me e-file my return, because of the 1116 form issue. I felt it is due to the carryover requiring a new schedule, and IRS says the new schedule will be available by 3/31/22, but will not support e-filing. There may be other issues like the AMT simplified method election, like last year.
Appreciate any suggestions for resolving this.
If you have foreign tax carryforward, it requires a new Form 1116 Schedule B which TurboTax doesn’t yet support and which will prevent e-filing. As a work-around, you can eliminate the carryforward. If you have a carryforward from last year, in the questionnaire section you will have the choice not to claim it. If you have a carryforward from this year, go to “Forms” in TurboTax (download version only), select the Form 1116 worksheet, go to the box at the bottom which has the carryforward number, right click and select “override,” and change the number to zero. This eliminates the need for Schedule B. If you want the carryforward, wait until Schedule B is available 3/31 and paper-file an amended return that includes it.
Thanks a bunch. There is a significant reduction in the credit when I set the carryover to zero. I may have to endure the inconvenience of mailing a paper return after several years. Do you know if the Schedule will be available in TT to fill on-line? It seems to be a rehash of the carryover tables the 1116 worksheet already has.
Harry Sit says
Late changes from the IRS create work for the tax software vendors. I would cut TurboTax some slack and just wait until 3/31. The delay from filing on paper will probably be longer than waiting a month to e-file.
Giri, Harry, Coriander,
hmm, looking at reply #7 (user: Coriander): in my form 1116 Comp Wks-> “FTC Carryovers from 2020 and 2022), I think I have to override BOTH the 2020 (1st section total) and the 2022 (total), to make them ‘0’ ;
in my case the totals were some $267 & $298 respectively. I am to receive a $99 FTC for 2021 Tax Year. Few years back I had to use the 1116 when my FT went over $300 (SingleFiler).
in 2021 I sold all my Foreign MF holdings, and plan to never buy them again in taxable side.
is there any downside, in my case to the ‘override’ to ‘0’ ?
seems to produce a $99 FTC whether I choose Simplified Method or the 1116 Long form, I vaguely recall something about once one begins using a form 1116, they can never return to the simplified method ever? though TurboTax seems to be offering it (and reclicking throught the step-by-step SM or 1116 produces same number) ?
earlier I had just deleted the 1116 and started over without any carryovers completed for 2018-2020 and turbotax spit out a larger $129 FTC
am allowed to do that ? and/or why would unused carryovers end up creating a LOWER FTC
What to do ?
The 1116 Carryover Schedule B will be available for print on 3/10/22 and for e-filing on 3/11/22 as per TT.
maybe I get the $99 lower FTC because, the appropriate form 1116b is NOT available yet?
think I’m willing to lose $300 or the $129 FTC(+$30 over the $99) by just zero’ing out the Carryovers, as Coriander says , and wash my hands of the FTC & TT , hopefully I can still e-file
Harry Sit says
3/11 is only a few days away. Don’t override anything and don’t move away from the simplified method.
Yes, I see Giri’s new information re: next week, vs. 3/31/22, and that one *will be able to e-file, hope it happens.
meanwhile my form 1116s started in 2018, so I’m unclear if there is even an option to use the Simplified Method for 2021?
(and/or the methodology to try both SM and 1116 to check which has the larger FTC)
There seems to be some confusion regarding the term “Simplified Method”.
My little understanding is
1) There is a simplified method for regular tax FTC, wherein, you can claim FTC without filing form 1116. This is limited to credit less than $300 per person and only passive income. If your credit exceeds this amount and/or you have other types of income, SM cannot be used, even if you used it before (i.e. any requirement to continue SM cannot be enforced).
2) The simplified method for FTC AMT implies that the same income is used for both regular tax and AMT FTC as opposed to calculating the AMT income separately. This election cannot be changed without IRS approval.
Harry Sit says
I was referring to the simplified method for AMT.
not part of Harry’s write up. But, when one must do the 1116 for FTC, just curious how one is to know what the LTCGs are?
on my vanguard VBS and MF statements all I see are QD but no information on LTCG, on the MF form it list “total CG dist” which is $0
on the VBS form there is no reference to “CG” at all $0 or otherwise.
for “foreign income” I believe I used the “foreign source income” supplemental page. (similar to the USG income supplemental)
Harry, if I wait to file until after 3/31, can I e-file using Turbotax? I do not have any foreign tax carryover from prior years, but I will have a big one for this year (2021).
Also, how do I use the carryover credit in future? Can I offset against my US income tax? Do I need to have enough foreign income as well?
Harry Sit says
TurboTax says e-file with Schedule B will start tomorrow.
The residual credit will be added to the foreign tax paid number next year and go through the same limit calculation again. Depending on your income composition, you may be able to use it up or it may snow ball bigger and bigger until the oldest carryover expires after 10 years.
Any idea if HR Block will incorporate Schedule B and when? Paper filing is not problem but if the interview will handle Schedule B in a few days, that is easier than reading the instructions and forms and preparing them manually.
Janice Sample says
Thank you so very much for your post regarding the foreign tax and the Schedule 1116 form. I only paid $11 in foreign tax but my statement clumped all the earning together making it over $300, but only $190 was earned that was foreign. Your very nice and clear screen shorts helped me get through Turbo Tax when I was stuck. Grateful to have found your article.
Has anyone successfully e-filed with Turbotax who needed Schedule B to Form 1116? I know someone who insists on e-filing even though I have told them paper filing is no big deal.
HR Block certainly doesn’t handle Form 1116 well – and I am not certain they handle it correctly this year as far as they handle it. Last year was the first year they even had an interview I think. It took a bit this year to figure out how to properly fill out the worksheet that feeds numbers into Schedule B. I suspect Block will handle it better in future years.
Unless I am mistaken, the $329,850 for the adjustment exception is NOT your taxable income – it is your taxable income less qualified dividends and capital gains. That is, it is essentially your income taxed at ordinary income rates. So you can have higher income – even substantially higher – and still qualify for the exception if the higher income is qualified income.
That said, best to avoid having to adjust. For most that means making sure you have less than $20,000 of foreign tax. I think adjusting has the effect of reducing the amount of credit that can be utilized, so the benefits of having a foreign tax credit are smaller.
This is all unnecessarily complicated for folks who only have foreign dividend income from funds or publicly traded foreign securities.
Harry Sit says
I e-filed with Form 1116 and Schedule B successfully with TurboTax. You’re correct – the income threshold for the adjustment exception is the income taxed at ordinary income tax rates, i.e. taxable income without qualified dividends and long-term capital gains. I edited the post.
Yeah but in you example the broker seems to be an american company that issues 1099. I deal with braziliam, mexican, argentinian and portuguese brokers and of course they never heard of a 1099-** so I have to manually create one using the best of my knowledge.
I use TTax, however this portion of the 1116 instructions still don’t make sense to me and I never know when and where I should do these multiplications
“multiply your foreign source qualified dividends
or capital gain distributions in each separate category
by 0.4054 if the foreign source qualified dividends or
capital gain distributions are taxed at a rate of 15%,
and by 0.5405”
I came across an online article from 2015 that gives an explanation of what qualifies as foreign qualified dividends. The article “Qualified Dividends From Foreign Corporations” is from expattaxcpas. You should be able to find it with a search engine. There are a number of requirements. One is that the stock of the foreign corporation must be traded on a US stock exchange.
Since qualified dividends are often taxed at a lower rate than ordinary income, figuring out which foreign dividends are qualified is important to potentially reduce income taxes, regardless of their impact on the foreign tax credit.
Informative post as usual! Last year I amended my 2020 return to carry back partial FT credits from 2021 to 2020. Should I have also amended my 2021 return for just the 1116 schedule B? For that, do I just need to submit a 1040X + 1116 SCH B, assuming everything else is the same? Or can I just skip amending 2021 and let the IRS figure it out based on my 2022 1116 SCH B which will have some carry forward and clearly shows the correct amount carried forward from 2021 (sans the amount carried back to 2020).
Harry Sit says
Take a look at the Schedule B form. Using some numbers as examples, suppose you paid $1,000 in foreign taxes in 2021. When you did your 2021 taxes, you found out that Form 1116 limits your foreign tax credit to only $200. Then you re-did your 2020 taxes and found out you could carry back $500. So you would amend your 2020 tax return to claim that $500. Ideally you put $500 on 2021 Form 1116 Schedule B line 7 to indicate it would be carried back and leave $300 as a carryover to 2022. Then you start with a $300 carryover from 2021 to 2022 and go from there. Suppose you didn’t put that $500 carryback on 2021 Form 1116 Schedule B line 7 and you had $800 as a carryover from 2021 to 2022. Now in 2022, you can still reduce the $800 carryover to $300 by entering -500 on Line 2a “carryback adjustment” in column xii “1st Preceding Tax Year.” That -500 should be your answer to the question on “carryback adjustment” from TurboTax.
Thanks for the response! When I tested your suggestion I discovered that TurboTax had already correctly populated my 2021 adjustment (the carry back to 2020) in the form 1116 worksheet. However, only the resultant total carryover amount was propagated to line 1 of the actual form 1116 SCH B for 1st preceding year. The adjustment was not propagated to line 2. Seems like a TurboTax bug. If it doesn’t get fixed by Apr, I’ll just override line 1 to be the carryover as of my last 2021 filing and override the line 2 adjustment to reflect the amount I moved into 2020. Thanks again.
I filed 2022 return with TurboTax.
Learnings from using it to handle foreign tax credit with Form 1116 and Schedule B:
-TurboTax correctly picked up the unused foreign tax credit generated in my 2021 TT return and included it with 2022 credit. And it generated the 2022 schedule B.
-I had to go to the Form 1116 worksheet and mark checkbox to get the “From 1099s” and “1099 taxes” notes to appear in box 1a and Part II date paid. The step-by-step mode did not do this.
– One of the 1099-DIV forms from my broker contained foreign taxes from a mutual fund and stocks from two different countries. This meant I needed to use columns A, B, and C on Form 1116. TurboTax assigns only one entity (RIC or country) to a 1099-DIV. To get all three columns (RIC, Canada, Sweden) on the Form 1116, I had to make the entries on the Form 1116 worksheet.
– I looked at what would happen if I adjusted foreign income entries to show qualified foreign income. The result was significantly less foreign tax credit allowed.
– TurboTax required me to file Form 1116 this year, even though my amount of credit was below the threshold. I’m guessing the reason was that it knew my prior year return included foreign tax carried forward on schedule B.
Overall, things went well for dealing with Form 1116 and carried over foreign tax credit this year. But, I hope I won’t have to deal with this again.
Lowrie Beacham says
I have a foreign tax credit on line 7 of only $483, well below the $600 threshold for married filing jointly to have to file a Form 1116; but when I run Smart Check it insists I must prepare this complicated form. What is going wrong, here, please?
Harry Sit says
Maybe you have a foreign tax credit carryover from last year it wants to help you claim? Make a copy of the current data file. Open the second copy and go through the motions in the second copy. See what difference it makes. You can always go back to the original copy when necessary.
Lowrie Beacham says
Last year, I had a foreign tax credit of $547–i.e., still below the $600 threshold; I assume that means I didn’t generate any tax credit carryover. So last year, TT prepared the expected Schedule 3. This year, it has not prepared a Schedule 3.
Harry Sit says
I don’t know why it didn’t put the credit on Schedule 3 for you. I tried in a test data file with $150 in Box 7 on a 1099-DIV. It put the $150 on Schedule 3 right away. Smart Check didn’t complain either. If you have multiple 1099-DIV forms, double-check all of them. Or delete the 1099-DIV form that has the $483 foreign tax in Box 7 and check Schedule 3. Enter the 1099-DIV form again and check Schedule 3 again.
Lowrie Beacham says
It certainly sounds from your experiment like I have some bad data in my proposed return, somewhere. I will have difficulty doing the same test as you, because this is the only 1099-DIV I have that has any foreign tax in it; so if I delete the $483 one, I won’t get a Schedule 3. I suppose I could “dummy” up a 1099-DIV and put some foreign tax in there, to see what happens. Vagrant thought: I’m running TT Premier; is that what you are using?
Harry Sit says
You can change the $483 to $4 and see what happens. I’m using TurboTax Deluxe.
Hi Harry, have a quick general question for you. I have significant foreign tax carryover from 2021. I had foreign interest in 2022, but no foreign taxes (taxes were deducted, but I am going to file a return to get a refund). Since I will not be claiming any credit for foreign taxes in 2022, does it mean that I won’t be able to use the carryover from 2021? Does the fact that I had foreign interest in 2022 matter at all? Thank you!!
Harry Sit says
Having foreign income lets you claim a part of the foreign tax carryover from previous years.
Thanks Harry! I entered the foreign income and zero foreign taxes in TurboTax, but it’s not doing anything about the carryover of credit. Are there any specific steps I need to take? Thanks again!
Harry Sit says
Whenever TurboTax offers you to take a shortcut, answer “No” to go through a full workup.
“Check any that apply to your foreign taxes” – None
“Do all of the following apply to your foreign income and expenses?” – No
Harry, this is in the Foreign Taxes section under “Deductions & Credits”, correct? I went through the whole questionnaire, entered the foreign income and verified the carryover tax credits it showed. It generated Form 1116 and Schedule B, but the end result is still zero credit. The only foreign income I have for 2022 is interest from bank accounts (passive income). Not sure what I am missing. Thanks for your help!
Harry, I think I made some progress. I tried putting $1 as the foreign tax paid on the 1099-INT from the foreign bank. After that, I went through the foreign tax questionnaire again and it tied the foreign income and the carryover together, and gave some credit. If I don’t put any foreign tax amount as paid in 2022, it’s not using the carryover credit even though I had foreign income in 2022. Is this your understanding of how TurboTax works?
I can stick with what I did with the $1, but technically I am going to get the entire foreign tax paid back as a refund.
Thanks for your guidance!
Harry Sit says
As I understand it, you should still be able to claim part of the carryover with $0 foreign tax paid. You can print out the two 1116 forms with $0 and $1 in foreign tax paid to see where they diverge. Alternatively, you can report the actual foreign tax paid and enter a negative adjustment to the carryover next year by the refund you receive from the foreign country. This reflects the reality better than $0 paid.
Thank you, Harry!! I like your idea of reporting the entire tax paid now and then reducing the carryover after I get the refund. I can also use the exchange rate on the day of the refund to keep it straight. I think this is very defensible in case IRS has any questions (very unlikely because we are not talking about big amounts here). Thanks again for all your help!
Lowrie Beacham says
Well; I tried; may have swapped the devil for the witch, though! So I went back into the DIV section and deleted both of the entries I had in there (turns out both did have some Foreign Tax Paid–but the total of the two was still less than $600. Then I went back in; I downloaded the smaller, seemingly non-troublesome one; the “problem child” I entered by hand, including that box for Foreign Tax. Lo and behold, no request to do a Form 1116!
At first I was satisfied; but then I noticed–also, no Schedule 3; it looks like I’m not getting the tax credit for the $483! So–now what??
Lowrie Beacham says
I think I’ve got it; wound up deleting both, then downloading both; this generated a Form 1116–but it was already largely filled out; all I had to do was choose “credit” rather than “deduction”–and then the hard part: the form wanted to know which foreign dividends generated the tax; that took considerable ferreting through a bunch of mutual funds, etc. I’m not sure I got the right ones; but it satisfied Turbo Tax, so that’s that. Thanks for the help I’ve gotten here; this was fairly hideous.
1099 DIV has Foreign Tax Paid under FFNOX, but Fidelity 2022: Important Information for
Individuals about Foreign Tax Paid has no info at all on FFNOX or some other Fidelity funds (see link below). Could there be some missing info on the linked pdf below?
Harry Sit says
FFNOX is a fund of funds. It didn’t pay foreign tax directly. It only passed on the foreign tax paid by other funds held by it.
If the 1099-DIV came from Fidelity, find the “Foreign Income and Taxes Summary” section in the consolidted 1099 PDF and use the information there. It’s on the second-to-last page in my consolidated 1099 download. I didn’t use the document you linked.
Thank you Harry for your reply. The consolidated 1099-DIV has only 2 pages. The second page is blank. There is no “Foreign Income and Taxes Summary” section at all. I believe it is still under the mutual fund format, not under the brokerage format with aggregation. That is why I needed the linked document to get the foreign %, but it has none about FFNOX or any others such as Japan fund, Canada fund, Nordic fund, Europe fund, etc.
Harry Sit says
Sometimes the institutional site has better information for the mutual fund format. This document lists FFNOX under Fund Number 355.
Wow! OMG! Thank you very much Harry! You are awesome! That is a fantastic work-around. Take care and all the best.
Harry Sit says
You’re welcome. Maybe ask Fidelity what it takes to move over to the brokerage platform for better support. The non-brokerage mutual fund accounts don’t get as much attention because most of their accounts are brokerage accounts.
That is a good suggestion. Will look into the brokerage platform. Thank you once again for your tremendous help. I have been spreading your valuable website to friends and family, infinitely more informative and helpful than others’. Cheers!
Dear Harry Sit and the many other people who have posted on this subject. This is by far the most useful and understandable and executable set of information and step-by-step instructions that I have found to date for entry of passive [dividends] income data into TurboTax in order to complete Form 1116 to claim a credit for foreign income taxes paid via brokerage accounts on dividends received on foreign corporate stock shares and RICs.
Unfortunately for myself, I chose to place my retirement “eggs” into different brokers, and one of them has two sub-accounts that have foreign dividends payments into my accounts. So far, I’ve spent nearly two full days trying to figure how to properly complete Form[s] 1116 to claim a refund that might be over $1000.
The TurboTax Forms and even the IRS Form 1116 and even the 1099-DIV Forms as automatically filled via electronic transfers appear to contain numerous errors. Among the errors is that they simply lump everything from a given brokerage account into one category and box, regardless of whether it’s a RIC or individual stock company. But Form 1116 and its worksheets appear to want nearly every minute detail.
TurboTax instructs the user to lump together the RICs into one Form 1116, but then there arises conflicts because the numbers from the different brokerage accounts don’t match; I started to do that, but ran into problems with the automatically entered numbers and those that needed to be added and subtracted if my RICs and other entries were to be correct.
So, at this juncture, I’m about to try initiating a separate Form 1116 and separate corresponding Worksheet for each Form 1099-DIV that was created in TTax when I imported the data electronically. I’m anticipating that I will have to manually enter a lot of data and manually override what TTax has automatically filled in. For example, TTax entered the total of dividends received from all foreign countries under the first named country; a manual override was needed to fix that.
Because the 1099-DIV, 1116 and Worksheet forms don’t enable labeling them to have the screen display exactly what brokerage account is being considered, it soon becomes very confusing and even more difficult to accurately complete them in TurboTax.
Also, as a general practice in situations like this one, I mail my return to the IRS and include a cover letter explaining what I did and why, and a photocopy of the pages from my brokerage accounts that include all of the details regarding any dividends [and capital gains and whether qualified or not] and foreign taxes paid, and authorize the IRS agent to make any entries or amendments needed to properly complete Form[s] 1116. It may take longer to receive my credit, but it saves having to file an amended return, or further delaying processing of my return because the IRS agent decides that further information is needed from me.
I ended up creating 3 copies of the Form 1116 Worksheets and Forms 1116. On one I entered as separate columns two RICs, each from a different brokerage account, along with their corresponding data. Then to cover individual stocks in individual countries held in two different brokerage sub-accounts, I created a Worksheet for each and labeled them in the top box [above the actual worksheet format] to enable me to identify them as to which sub-account, and entered the data for each country in a separate column for the corresponding sub-account.
It was time consuming to go through the supplemental data from the brokerage accounts and calculate then enter total dividends and qualified dividends for each country and sub-account, but it totally satisfied TurboTax Premier 2022 downloaded from purchased disc.
I also took time to make some notes for myself on a tablet that I keep with my rolling from year to year file for income tax return preparation, so that hopefully next year, if Congress/IRS don’t change the requirements and forms for claiming a credit for foreign taxes paid, I won’t find it so difficult and time consuming.
I have 2022 Dividends from a UK Corporation which were subject to 0% Foreign Tax Withholding. These Dividends were reported as Ordinary and Qualified Dividends (Boxes 1a, 1b) in the 2022 1099-DIV. There was no identification of these Dividends in Supplemetal 1099-DIV reporting as “Foreign Sourced Income”. Turbo Tax did not include these in Form 1116 when I used the TurboTax 1099-DIV download.
Prior years included 15% Tax withholding on dividends and there are prior year unused Foreign Tax Credits. My expectation was that I would recover some of the unused prior year Foreign Tax Credits from the 2022 Foreign Sourced Dividend Income which was not subject to Foreign Tax Withholding. Since these 2022 Dividends are “Foreign Qualified Dividends and Capital Gains (Losses)” I expected Turbo Tax to include these in form 1116 even with 0% withholding to accomodate recovery of prior year unused Foreigh Tax Credits.
Per 1116 instuctions, I must adjust the foreign source qualified income and capital gain distrubutions and Line 1a instructions provide “You adjust your foreign sourced didvidends or capital gain distributions taxed at the 0% rate by not including them on line 1a”. I also do not qualify for the adjustment exception. As a result, I expected line 1b to be zero for these foreign sourced dividends.
I followed your suggestion by adding $1 in Box 7 of 1009-DIV which resulted in these Dividends being picked up my Turbo Tax in form 1116. Problem is, Turbo Tax continues to calculate a amount for line 1b which is incorrect. Since there was 0% Foreign Tax withholdling line 1b should be zero but this still needs to be included in Form 1116 for reporting and recovery of prior unused Foreign Tax Credits.
I tried to manually enter the data into the form 1116 worksheet but Turbo Tax would not let me handle this way.
Harry Sit says
The 0% in “You adjust your foreign sourced didvidends or capital gain distributions taxed at the 0% rate by not including them on line 1a” isn’t referring to the withholding rate. TurboTax will do the correct adjustment when you don’t qualify for the adjustment exception.
You don’t have to add $1 to Box 7 of your 1099-DIV. Go into the foreign tax credit section and pretend you’re reporting foreign source income other than dividends. Choose Passive Income. Add the country. When it asks you about Other Gross Income, click on Forms on the top right. It opens Foreign Tax Credit Computation Worksheet. Now you enter directly the foreign dividend number on line 1c (Gross Income – Interest and Dividends from Schedule B) under column A for that country. Click on Step-by-Step to return to the interview and continue. It will ask you how much of the dividends were qualified dividends a few steps later. It will use some of your credit from previous years in the end.
This blog was very helpful! Unfortunately, Turbotax gets stuck at on the page with the question: “Any foreign source qualified dividends or long term capital gains?”
After I type in the foreign qualified dividends & l.t. capital gains, Turbotax has an error message that says, “This field should be at least $x,xxx”.
But I can see that the value in the field already matches that amount. So I am stuck on this page & can’t get Turbotax to accept my foreign qualified dividends. Is there a solution for this?
I found the bug. Everything works when I rounded off to the nearest dollar.
Unfortunately, there was no change defining the foreign income as qualified dividends. My foreign taxes are still higher than the limit, so I get a foreign tax credit which I probably will never be able to use :0)
I imported my broker form to Turbo Tax. Strangely, the 1099Div panel on Turbo Tax shows a negative foreign tax paid for box 7.
I downloaded a pdf version of the 1099Div from my broker and that value is positive, with the amount being the same value as the imported value except the minus sign.
I presume that the import data is buggy and that the foreign tax paid on box 7 should be a positive number?
Turbo Tax wouldn’t allow me to correct the value on the 1099DIV panel. I had to go into forms to correct the value.
Harry Sit says
Go by the PDF version when the import doesn’t match the PDF.
How does TT handle more than 3 countries on a 1116? I tried using the IRS Free Fillable Forms and it does not properly combine multiple form 1116 for the same (passive) income type.
Harry Sit says
The screenshot under “Where Did You Receive Dividend Income From” shows you can add up to four countries. I always only did one (“RIC”) because all my dividends came from mutual funds and ETFs.
Thanks, I see that. However, I’m curious how the final forms sent to the IRS look. I don’t see how they can be correct, in general. Either the right hand column on the first form isn’t the sum of the 3 columns to its left (it needs to be the sum of *all* the entries for that category, across multiple forms). The ratio computed on line 19 will be different depending on whether it is computed across all columns on all forms, or separately for each form (in which case each form has a different result). If you treat the additional forms of the same category as multiple forms, you can’t just sum the results and enter it on line 27 — it will be the wrong number, because the computation on line 19 will be different across the two forms.