Do i qualify for a foreign tax credit - (form 1116)? my 401k account includes shares of bayry, a german company. which issues dividends taxed at 28% (German tax rate)

[peter_wagener]

My 401K -plan is with Raymond James.

[HelenC12]

Enter the foreign income. TurboTax will calculate your Foreign Tax Credit, if any. See 

• Where do I enter the foreign tax credit (Form 1116) or deduction for 2020?

If TurboTax doesn't calculate the Foreign Tax Credit, see 

• Why doesn't the foreign tax credit show up on Schedule 3, Line 1 of my 1040?

To be eligible for the Foreign Tax Credit, you must be a U.S. citizen or resident alien or a U.S. nonresident alien who is a full-year resident of Puerto Rico.

You must have paid, accrued, or owe taxes on foreign income that is also subject to U.S. income tax. This foreign tax must be an income tax or a tax in lieu of an income tax that is imposed on you and is a legal and actual foreign tax liability.

Foreign taxes that don't qualify

• Taxes that are refundable to you
• Taxes used to provide a subsidy to you or a relative
• Non-mandatory taxes that could have been avoided
• Taxes paid or accrued on income earned in countries designated as a State Sponsor of Terrorism or that the U.S. has severed ties or diplomatic relations
• Social security or Social Security taxes paid to countries with which the U.S. has an International Social Security (Totalization) agreement
• Taxes on foreign mineral income
• Taxes from international boycott operations
• A portion of taxes on combined foreign oil and gas income
• Taxes paid by U.S. persons controlling foreign corporations and partnerships who fail to file required information returns

[Bob1027]

In the year of the receipt and payment of the foreign tax on dividends, no credit is allowed.  The best that could be hoped for is that if you keep track of all of the foreign dividends and foreign taxes withheld from those dividends, then you might be able to take a credit in the year of a taxable  withdrawal .  Imagine your 401k has $99,700 in it at the time that you take a taxable withdrawal of $3,000.   The cumulative foreign source income of  you 401K was $2,000 of which $300 has been withheld at source by the foreign country.  If it were not for the tax withholding your account would have had $100,000 in it.  Your withdrawal = 3% of the pre-tax value of the account.   Then 3% of the $2000 in foreign dividends means that $60 of your withdrawal was foreign source income and $9 in foreign taxes were withheld on it.  You might be able to take tax credit in that amount and if using form 1116, would list $60 of foreign income and $9 of taxes paid or accrued.  I don't know if this second approach is permitted but it treats the domestic 401K or IRA in the same manner as a complex foreign non-grantor trust. which generates taxable income to the beneficiary only in the year distributions are made.  

[ReneeM7122]

Yes, if your 1099-DIV has an entry for foreign taxes paid and shows the country, then you can take the foreign tax credit when your 401(k) has holdings in a foreign country.

Here is an IRS link for more information in detail.

[Bob1027]

If your holdings of Foreign stock and foreign tax paid are in your IRA or 401K, then any dividends paid will not by reported in your 1099-Div.

[ReneeM7122]

Correct, dividends paid on foreign stock paid on a 401(k) are generally not reported on 1099-DIV.  In answer to the original question, unfortunately, you can't deduct foreign taxes that you pay on investments held in a tax-deferred account, such as an individual retirement account (IRA) or 401(k) because the income isn't being taxed by the US while it is in the account..  You won't lose out, however, because the foreign taxes that are imposed reduced the earned income.  When you make a withdrawal in retirement, those foreign taxes reduce the earned income, and you will not pay US tax on the amount that was already reduced.

@peter_wagener

@Bob1027