Client did some acting work in Canada and received an NR4 showing the 23% withholding for Non-residents. It’s been my understanding that US citizens get a dollar-for-dollar credit of those taxes (in USD) against their total 1040 income. My tax software people are telling me I must use the 1116, which results (for my guy) in only 43% of the withheld tax showing as a tax payment. This somehow does not seem right.
The 1116 is a long somewhat confusing form, but the net result is the form is computing of the total tax, how much is attributable to the foreign income, and that amount becomes the allowable credit limit. So, if the US tax rate is 28 % and the foreign tax witheld was 35 %, the credit is limited to the smaller amount.