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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28988
Experience:  Taxes, Immigration, Labor Relations
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How do states taxes paid on foreign income affect form 1116?

Customer Question

How do states taxes paid on foreign income affect form 1116?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Foreign tax credit we are claiming on form 1116 is a federal tax credit and only reported on the federal tax return.
State tax liability is NOT affected by that credit.

Customer: replied 1 year ago.
state taxes paid on the foreign income do not come into play when calculating the credit? I see lines that say directly related and not directly related.
Expert:  Lev replied 1 year ago.

If you are a resident of a specific state - you are taxed on all worldwide income on the state level.
Federal credits do not work on the state level.
But states might have their own deductions and credits and these are NOT related to federal form 1116.