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You Must Have Paid or Accrued the Tax: Foreign Tax Credits (2025 IRS Guide)

This guide covers “You Must Have Paid or Accrued the Tax” within foreign tax credits. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 514 (2025), Foreign Tax Credit for Individuals, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

You Must Have Paid or Accrued the Tax

In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U.S. territory. However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself.

Joint return.

If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse.

Combined income.

If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person’s portion of the combined income, as determined under foreign law and Regulations section 1.901-2(f)(3)(iii). Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is figured separately, and the tax on that combined income is allocated separately.

Example.

You and your spouse reside in Country X, which imposes income tax on your combined incomes. Both of you use the “u” as your functional currency. Country X apportions tax based on income. You had income of 30,000u and your spouse had income of 20,000u. Your filing status on your U.S. income tax return is married filing separately. You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U.S income tax return. Your spouse can claim only 40% (20,000u/50,000u).

Partner or S corporation shareholder.

If you are a partner in a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. These amounts will be shown on the Schedule K-3 you receive from the partnership or S corporation. However, if you are a partner in a partnership or a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation unless you make a section 962 election, discussed later under Controlled foreign corporation (CFC) shareholder.

Beneficiary.

If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. This amount will be shown on the Schedule K-1 you receive from the estate or trust. However, you must show that the tax was imposed on income of the estate and not on income received by the decedent.

Mutual fund shareholder.

If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income and your share of the foreign taxes paid. If you do not receive this information, you will need to contact the fund.

Controlled foreign corporation (CFC) shareholder.

If you are a shareholder of a CFC and elect under section 962 to be taxed at corporate rates on your section 951(a) amount (which is generally your share of subpart F income and your section 956 amount with respect to investment of earnings in U.S. property), and your global intangible low-taxed income (GILTI) inclusion for the tax year, you may be able to claim a credit for certain foreign taxes paid or accrued by the CFC, but only against your separately computed U.S. tax liability with respect to your section 951(a) amount and GILTI inclusion. To claim the credit, you must file Forms 1118, as applicable, and you must also include the statement required under Regulations section 1.962-2 to make the section 962 election.

You should include the following information for the tax year in your statement.

  • Your section 951(a) amount broken out between subpart F income and section 956 amount.

  • Your GILTI inclusion.

  • The amount of your deduction under section 250 with respect to your GILTI inclusion (your section 250 deduction).

  • The amount of the foreign tax credit taken on your section 951(a) amount broken out between subpart F income and section 956 amount, and your GILTI inclusion.

  • The amount of your U.S. tax liability with respect to amounts subject to section 962.

See Internal Revenue Code sections 951(a), 951A, 960, and 962 and Regulations section 1.962-2 for more information.

Tip:

If you are a shareholder in a CFC who has made a section 962 election and you figured a foreign tax credit, see the instructions for Form 1040 or 1040-SR, line 16.

Controlled foreign corporation (CFC).

A CFC is a foreign corporation in which U.S. shareholders directly, indirectly, or constructively own more than 50% of the voting power or value of the stock. You are considered a U.S. shareholder if you own, directly, indirectly, or constructively, 10% or more of the total voting power or value of all classes of the foreign corporation’s stock. For tax years beginning after 2017, the definition of U.S. shareholder is expanded to include U.S. persons who own 10% or more of the total value of shares of all classes of stock of such foreign corporation. See Internal Revenue Code sections 951(b) and 958(b) for more information.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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