Nearly 2 million Americans live overseas. A 2022 IRS Data Book report found U.S. expats claimed over $10 billion in credits for foreign taxes paid. If you’re working in Hong Kong, the Alternative Minimum Tax can feel overwhelming. The foreign tax credit AMT can ease your bill and keep more of your earnings in your pocket.

Here at American Pacific Tax, we’ve guided expats just like you through every step of claiming this credit. Use these seven tips to unlock the savings you’ve earned abroad.

1. Calculate your credit limit

Your foreign tax credit is capped by a fraction:

  • numerator: your taxable income from foreign sources
  • denominator: your total taxable income

Multiply that fraction by your total U.S. tax to find your maximum credit. If you need help with the math, see our guide on foreign tax credit calculation.

2. Offset your AMT liability

The credit can reduce regular tax first, then apply to your AMT bill. Since the credit and deduction work differently under the AMT system, you may prefer the credit, so compare foreign tax credit vs deduction to see what saves you more.

3. File Form 1116

You’ll generally attach the foreign tax credit form, IRS Form 1116, to your return. That form lets you report foreign taxes paid or accrued. For a full walkthrough, see our guide on how to claim the foreign tax credit.

4. Carry unused credits

If your foreign tax exceeds the limit, you’re not out of luck. You can:

  • carry back excess credits one year
  • carry forward unused credits up to ten years

Use Form 1116 to track these carryovers, or learn more at foreign tax credit carryover.

5. Leverage tax treaties

Some treaties let you claim extra credits separate from the standard limit. Countries include Australia, Canada, France, Germany, Japan, the U.K., and more. Before you file, review treaty rules at foreign tax credit limitations.

6. Claim CSG and CRDS taxes

Since a 2019 U.S.–France agreement, the IRS accepts credits for French social taxes (CSG and CRDS). If you paid these but didn’t claim them, you can file an amended return and get a refund. See our overview of the foreign tax credit for details.

7. Plan passive income streams

Foreign passive income (rent, royalties, dividends) must be reported in its own category on Form 1116. Proper allocation can boost your available credit. For more on handling these sources, visit foreign tax credit passive income.

Your questions answered

How does the foreign tax credit impact my AMT liability?
The credit reduces your regular tax first, then applies to your AMT liability under IRS rules. It won’t wipe out AMT dollar for dollar but it can cut your total tax. See IRS guidance for details.

Which forms do I need to file to claim the credit?
Most expats use Form 1116 to report foreign taxes and claim credits. You’ll also attach Form 8801 if you owe AMT and want a minimum tax credit in a future year. For step-by-step help, see how to claim the foreign tax credit.

Can I carry unused foreign tax credits forward or backward?
Yes. You can carry excess credits back one year and forward up to ten years. Use Form 1116 to track carryovers, or read more at foreign tax credit carryover.