Is the Foreign Tax Credit refundable?
No, the Foreign Tax Credit is a nonrefundable credit, meaning it can reduce your U.S. federal income tax liability to zero but cannot generate a refund. If your foreign taxes exceed your U.S. tax on the same income, the excess does not come back to you as a payment. Instead, unused credits carry back one year and forward ten years under IRC Section 904(c).
How nonrefundable credits work on your return:
| Scenario | U.S. tax before FTC | Foreign tax paid | FTC allowed | Result |
| Foreign tax < U.S. tax | $12,000 | $8,000 | $8,000 | $4,000 U.S. tax owed |
| Foreign tax = U.S. tax | $12,000 | $12,000 | $12,000 | $0 U.S. tax owed |
| Foreign tax > U.S. tax | $12,000 | $16,000 | $12,000 | $0 owed + $4,000 excess carries |
What happens to excess credits:
- Carry back 1 year: Amend the prior-year return to apply unused FTC first
- Carry forward 10 years: Apply against future U.S. tax in the same FTC category
- Category tracking: Passive, general, GILTI, and foreign branch carryovers stay in their own lanes on Form 1116 Schedule B
- Oldest first: IRS requires you to use the earliest carryover year before later ones
Why excess credits build up:
- You live in a high-tax country (Germany, France, Australia, UK) where rates exceed U.S. rates on the same income
- You have GILTI inclusions where Section 960 credits are limited to 80%
- Timing differences between when foreign tax accrues and when U.S. income is recognized
Excess credits are not lost, but they can expire after 10 years. If you have a growing carryover balance, review whether adjusting your FEIE/FTC strategy or income timing could put those credits to work sooner.
For carryover tracking, see our Foreign Tax Credit carryover guide. For a broader FTC strategy, see our Foreign Tax Credit Guide.
Last updated on April 29, 2026
