Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Foreign Tax Credit and Completing Form 1116

Completing Form 1116

Part I

To calculate the maximum foreign tax credit that taxpayers can claim, compare their foreign income taxed by the U.S. with their total income taxed by the U.S. Use a separate column in Part I and a separate line in Part II to report income from each country or possession of the same category checked on boxes a through g.

To complete Part I of Form 1116 for U.S. citizens who are residents of Puerto Rico and received Puerto Rico source income:

  • Enter the name of the foreign country, Puerto Rico, on line i, column A, B, or C. Use that column to report taxpayers' Puerto Rico source income that is taxable to the U.S.
  • Record the amount of gross Puerto Rico source income in Part I, line 1a. Income reported on Form 1116, line 1a must be included on form 1040. Gross income does not include exempt income under IRC 933 and IRC 912.
More Information

A U.S. government employee reports wages on Form 1116, line 1a. If all the services were performed in Puerto Rico, this information is obtained from Form W-2 line 1. Do not include the Cost Of Living Adjustments (COLA) or exempt income.

Note: It is important to correctly separate the foreign income entered on Form 1116 from the total income on Form 1040. Income reported on line 1a must be included on Form 1040. But, Form 1040 may include other income that is not eligible for the foreign tax credit because it is U.S. source. For example, Social Security benefits or services performed in the United States.

Form 1116, Part I with Puerto Rico in column A.