Tax
Foreign Tax Credit (FTC)
Also known as: FTC, Foreign Tax Credit, Form 1116
The FTC is the second of the two main tools (alongside FEIE) that US expats use to avoid double taxation. Where FEIE excludes earned income up to a fixed dollar cap, the FTC operates as a credit against US tax for the actual foreign income tax already paid on the same income. There is no dollar cap on the FTC itself — instead, it's capped by category (passive vs general vs branch vs lump-sum distribution categories), with the per-category cap equal to the US tax that would otherwise be due on the foreign-source income in that category.
Practical examples:
• A US citizen earning $200,000 in Germany pays roughly 42% German income tax. The German tax is converted to USD and applied as a credit against US tax on the same income. Because German rates exceed US rates, no US income tax is due — but the taxpayer cannot claim a refund for the excess German tax paid (the cap means surplus credits are non-refundable). The excess can be carried forward 10 years to offset future US tax on income taxed at lower rates.
• A US citizen earning $200,000 in Singapore pays ~22% Singaporean income tax. US tax on the same income would be roughly 24%. The FTC offsets the Singaporean tax against the US tax, leaving a small residual US tax bill. The taxpayer cannot use FEIE here because the Singapore source income is too high — but FTC does the work.
FTC vs FEIE choice: FEIE is simpler and reduces self-employment tax exposure for some structures; FTC is uncapped at the credit-side and allows full deduction for itemised expenses. Many expats compute both and use whichever yields the lower total US tax. Once FEIE is revoked, it cannot be re-elected for 5 years without IRS consent — so the choice is sticky.
FTC is also available for state-level US taxes paid abroad in some states, though state rules vary considerably.
Sources
Last factual review: 2026-05-08.
Related terms
FEIE (Foreign Earned Income Exclusion)
FEIE lets US citizens and resident aliens exclude up to $132,900 (2026) of foreign-earned income from US federal income tax — but not from Social Security/self-employment tax. To qualify, the taxpayer must meet either the Bona Fide Residence Test (full-year tax residence in a foreign country) or the Physical Presence Test (330 full days abroad in any 12-month period). Claimed on IRS Form 2555 attached to Form 1040.
Double Taxation
Double taxation occurs when the same income or capital is taxed twice — typically once by the source country (where the income arises) and once by the residence country (where the recipient is tax resident). It's prevented by tax treaties (which allocate taxing rights) and by domestic relief mechanisms like the foreign tax credit and the foreign earned income exclusion. Unrelieved double taxation is rare in modern tax systems but can still occur with non-treaty-partner countries.
Tax Treaty
A tax treaty is a bilateral agreement between two countries that allocates taxing rights over cross-border income, prevents double taxation, and provides mechanisms to resolve disputes. Treaties typically follow the OECD or UN Model Convention. The US has tax treaties with about 70 countries; the UK with about 130. Treaty benefits often require formal claim on a tax return (e.g., IRS Form 8833 for treaty-based positions on a US return).
IRS Streamlined Filing Compliance Procedure
The IRS Streamlined Filing Compliance Procedure is the standard remedial pathway for US persons who failed to file FBARs, Form 8938, or income tax returns reporting foreign income — provided their non-compliance was non-wilful. The Streamlined Foreign Offshore Procedure (SFOP), for taxpayers living abroad, requires 3 years of amended/late tax returns + 6 years of FBARs + a non-wilfulness statement. Penalty: zero on SFOP if non-wilfulness is established.
Deeper guides
US Expat Tax Guide 2026: FEIE $132,900, FTC, and Zero-Tax Strategies
Comprehensive 2026 US expat tax guide. FEIE exclusion: $132,900 (single) / $265,800 (married). Combined with standard deduction: $149,000 zero-tax threshold. FTC, self-employment tax, Totalization Agreements, and destination tax regimes (Beckham Law, Impatriate, IFICI) explained.
FEIE vs. Foreign Tax Credit in 2026: Which Saves You More? ($132,900 Exclusion)
2026 FEIE raised to $132,900. Compare the Foreign Earned Income Exclusion and Foreign Tax Credit with worked examples by income level. Includes FBAR and FATCA requirements.
Digital Nomad Tax Guide 2026: FEIE, FTC, and Country-Specific Strategies
Double taxation, tax treaties, FEIE, Foreign Tax Credits, and country-specific tax regimes — the complete 2026 tax guide for digital nomads.
Tax Optimization Strategies for Expats (2026)
Legal tax optimization for US expats — FEIE ($126,500), Foreign Tax Credit, tax treaties, state exit strategies.