Foreign Tax Credit – Federal and North Carolina

When filing a federal tax return, a taxpayer may qualify for the foreign tax credit.  The foreign tax credit may be claimed for foreign tax imposed on a taxpayer by a foreign country or U.S. possession.  To qualify for the foreign tax credit, the foreign tax must be imposed on you, you must have paid or accrued the foreign tax, the foreign tax must be the legal and actual foreign tax liability and the foreign tax must be an income tax or in lieu of an income tax.  To claim the credit, you must file Form 1116 Foreign Tax Credit along with your federal income tax return.  If no foreign tax credit was claimed at the time you filed your return, you have up to three years from the date you filed your original return or two years from the date you paid the tax to file an amended return and claim the credit.

A majority of states do not offer a foreign tax credit for taxes paid to foreign countries, North Carolina, however, is one of the exceptions.  Like the federal foreign tax credit, the North Carolina foreign tax credit reduces your overall North Carolina income tax.  In order to claim your foreign tax credit in North Carolina, you must complete Form D-400TC 2015 Individual Income Tax Credits, compute your eligible amount of credit and transfer the eligible amount to Form D-400, North Carolina’s Individual Income Tax Return.

You must attach Form D-400TC, a copy of your foreign tax return (for the country which you are claiming the foreign tax credit) and proof of payment of the foreign tax with your North Carolina Income Tax Return in order to claim the foreign tax credit.