Taxpayer that paid income tax to a foreign country may be able to take a credit for such payments. To do so, a taxpayer generally must complete and attach Form 1116 to his/her Form 1040. Taxpayers who meet all of the following criteria, though, need not complete Form 1116:
1) All of the foreign source gross income was derived from interest and dividends and all such income and associated taxes were reported on Form 1099-INT, Form 1099-DIV, or Schedule K-1.
2) The total amount of foreign taxes paid during the tax year did not exceed $300 ($600 if Married Filing Jointly).
3) Taxpayer held the stock or bonds on which the dividends or interest were paid for at least 16 days; additionally, taxpayer was not obligated to pay these amounts to someone else.
4) Taxpayer is not filing Form 4563 or excluding income from sources within Puerto Rico.
5) All of the foreign taxes were (i) legally owed and not eligible for a refund or reduced tax rate under a tax treaty and (ii) paid to countries that are recognized by the United States and do not support terrorism.
For a more thorough explanation of these requirements, see the Instructions for Form 1116. A taxpayer who meets all five of the above requirements should enter on Line 47 of Form 1040 either the smaller of his/her (a) total foreign taxes or (b) the amount on Line 44 of Form 1040.
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