Foreign Tax Information
The American Funds listed in the Foreign Income Worksheet and Foreign Qualified Dividend Income Worksheet distributed foreign taxes on earnings from investments outside the United States. The foreign taxes distributed by these funds are reported on your Form 1099-DIV, and you may claim a foreign tax credit or deduction for your share of the foreign taxes distributed.
Foreign Tax Credit vs. Deduction
You may claim a foreign tax credit or take an itemized deduction for your share of the foreign taxes distributed by a qualifying fund. However, you will usually receive more benefit by claiming a tax credit.
For more information about the IRS requirements to claim a foreign tax credit, refer to IRS Publication 514, Foreign Tax Credit for Individuals. (To order, call (800) 829-3676 or download from the IRS website.)
Note: If you can claim a foreign tax credit directly on Form 1040, you do not need to complete the Foreign Income or Foreign Qualified Dividend Income Worksheet.
Claiming a Credit for Foreign Taxes
If you are an individual taxpayer and you meet all of the requirements to claim a foreign tax credit, you can claim the credit directly on IRS Form 1040 if all of the following apply:
- All your foreign taxes from mutual funds and other sources are not more than $300 ($600 if married filing jointly).
- All your foreign income falls into the passive income category as defined by the IRS.
- All your foreign taxes are reported on Form 1099-DIV, Form 1099-INT, Schedule K-1 or a substitute statement.
If one or more of these do not apply, you must complete the Foreign Income Worksheet and the Foreign Qualified Dividend Income Worksheet. The information from these worksheets should be reported on IRS Form 1116 (Form 1118 for corporations).
The Foreign Tax Paid can be obtained from either the Foreign Tax Paid amounts shown in the Year-to-Date Transaction History section of your year-end statement for all share classes you own or from Box 7 of Form 1099-DIV (individuals only).
Completing Your Form 1116
According to the IRS, when you are completing Form 1116, you do not need to report income from a mutual fund or other regulated investment company (RIC) on a country-by-country basis. You can simply total all foreign income passed through from a mutual fund or other RIC and enter the total in a single column in Part I. Then enter RIC where the foreign country name is requested. Likewise, total all foreign taxes paid and enter the total on a single line in Part II for the dividends category.
To claim a foreign tax credit, corporations should complete IRS Form 1118 using the Foreign Income Worksheet. Corporations do not need to complete the Foreign Qualified Dividend Income Worksheet, because corporations are not eligible to receive qualified dividend income.