Filing Form 1116 – Foreign Tax Credit Explained

[jaywave 2]

Me (US citizen)

Spouse (Permanent Resident)
 

My wife and I are planning to file jointly (MFJ), but I’m worried about doing our taxes correctly.

In 2024, my wife was in the U.S. from April to May (1 month) and again from July to October. She then returned to Korea, where she worked from November to December and paid taxes on her income there. Also, she didn't work in the US and made zero income in the US. As for me, I'm currently living and working in the US.

From my research, she does not qualify for Form 2555 (Foreign Earned Income Exclusion) because she spent about 3–4 months in the U.S., which does not meet the physical presence test. However, I read that she might be able to file Form 1116 (Foreign Tax Credit) to claim a credit for the taxes she paid in Korea.
 

My question is: Should she file Form 1116? I’m trying to use TurboTax, but the process is confusing.

If anyone has any better suggestions, please reply.

Thank you.

[OldUser 8,055]

US LPR is a always a tax resident for the purposes of IRS.

 

Why is the spending so much time outside of the US? Does she have reentry permit? She may lose GC if she doesn't have reentry permit or loses ties to the US.

Edited February 17 by OldUser

[JeanneAdil 6,722]

What is the difference between form 1116 and 2555?

 

 

For example, if your foreign earned income is $120,900, you can only exclude foreign earned income up to $112,000 on the Form 2555 which will reduce your taxable income on the return. The remaining foreign earned income may be used on Form 1116.

 

 

you have to meet individuals must meet either the bona fide residence test or the physical presence test, and have a tax home in a foreign country.

 

you need a tax preparer to talk to about your absense from USA to know how to proceed /forget turbo tax as it does not explain or know your circustances as LPR

[JKLSemicolon 442]

Read the detailed instructions for the FEIE here, especially the Physical Presence Test section:

 

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test

 

In particular, this part may still apply:

 

You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during any period of 12 consecutive months including some part of the year at issue. The 330 qualifying days do not have to be consecutive.

 

Also of note:

Full day

A full day is a period of 24 consecutive hours, beginning and ending at midnight. You must spend the full day in a foreign country or countries for that day to be counted. When you leave the United States to go to a foreign country or when you return to the United States from a foreign country, the time you spend on or over international waters does not count as time in a foreign country.

 

I would recommend making a spreadsheet of the date ranges she was in the US versus out and seeing if there is a 12-month period that meets that criterion for you. That’s what we did when using the FEIE.

[jaywave 2]

22 hours ago, OldUser said:

Why is the spending so much time outside of the US? Does she have reentry permit? She may lose GC if she doesn't have reentry permit or loses ties to the US.

She doesn't have a reentry permit, but she has been outside the US for over 6 months, but less than 1 year. She has a drivers license in the state we live in, bank, etc. From what I read in the cbp website, as long as my spouse is not gone for more than 1 year, she will be fine.

 

 

8 hours ago, JKLSemicolon said:

Read the detailed instructions for the FEIE here, especially the Physical Presence Test section:

 

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test

 

In particular, this part may still apply:

 

You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during any period of 12 consecutive months including some part of the year at issue. The 330 qualifying days do not have to be consecutive.

 

Also of note:

Full day

A full day is a period of 24 consecutive hours, beginning and ending at midnight. You must spend the full day in a foreign country or countries for that day to be counted. When you leave the United States to go to a foreign country or when you return to the United States from a foreign country, the time you spend on or over international waters does not count as time in a foreign country.

 

I would recommend making a spreadsheet of the date ranges she was in the US versus out and seeing if there is a 12-month period that meets that criterion for you. That’s what we did when using the FEIE

But I'm not sure if my spouse will meet this requirement. Because she will have to start from May 2, 2024 to May 2, 2025. The issue with the meeting the physical presence test is that she was in the US from July to October, 2024 (68 days). Is it even possible she can meet the physical presence test?

[JKLSemicolon 442]

1 hour ago, jaywave said:

She doesn't have a reentry permit, but she has been outside the US for over 6 months, but less than 1 year. She has a drivers license in the state we live in, bank, etc. From what I read in the cbp website, as long as my spouse is not gone for more than 1 year, she will be fine.

 

 

But I'm not sure if my spouse will meet this requirement. Because she will have to start from May 2, 2024 to May 2, 2025. The issue with the meeting the physical presence test is that she was in the US from July to October, 2024 (68 days). Is it even possible she can meet the physical presence test?

It’s hard to answer your question because we don’t have all the information. I don’t know the significance of the May 2 date you picked. We’re talking about the 2024 tax return, right?

 

To give you a definitive answer you’ll need to list all the dates she was in the US for 2023 and 2024 (assuming we’re talking the 2024 tax return).

 

[jaywave 2]

On 2/17/2025 at 10:46 PM, JKLSemicolon said:

It’s hard to answer your question because we don’t have all the information. I don’t know the significance of the May 2 date you picked. We’re talking about the 2024 tax return, right?

 

To give you a definitive answer you’ll need to list all the dates she was in the US for 2023 and 2024 (assuming we’re talking the 2024 tax return).

 

Sorry for the late response. 

She was in the US from April 1 to May 1, 2024. And then she was in the US from July 28 to October 4, 2024. Can she still file for the physical presence test?
 

[OldUser 8,055]

21 minutes ago, jaywave said:

 

Sorry for the late response. 

She was in the US from April 1 to May 1, 2024. And then she was in the US from July 28 to October 4, 2024. Can she still file for the physical presence test?
 

 

On 2/16/2025 at 8:16 PM, OldUser said:

US LPR is a always a tax resident for the purposes of IRS.

The fact she has GC makes her pass green card test, meaning she's the resident for tax purposes.

[OldUser 8,055]

On 2/17/2025 at 7:20 PM, jaywave said:

She doesn't have a reentry permit, but she has been outside the US for over 6 months, but less than 1 year. She has a drivers license in the state we live in, bank, etc. From what I read in the cbp website, as long as my spouse is not gone for more than 1 year, she will be fine.

1. Nobody can ever give 100% gurantee she'll be fine spending 6+ months outside the US without reentry permit

2. This resets her eligibility for naturalization, as breaks continuous presence test (for USCIS)

3. Her claiming to be non-resident for US tax purposes can bar her from becoming a US citizen in the future. N-400 form has question :

 

"Since you became a lawful permanent resident, have you called yourself a "nonresident alien" on a  Federal, state, or local tax return or decided not to file a tax return because you considered yourself to  be a nonresident? "

Edited Thursday at 03:12 AM by OldUser

[JKLSemicolon 442]

2 hours ago, jaywave said:

 

Sorry for the late response. 

She was in the US from April 1 to May 1, 2024. And then she was in the US from July 28 to October 4, 2024. Can she still file for the physical presence test?
 

 

And what about in 2023? We need to know both years to consider the possible 12-month periods ending in tax year 2024. Also, when did she become a permanent resident? Your timeline is empty.

 

2 hours ago, OldUser said:

1. Nobody can ever give 100% gurantee she'll be fine spending 6+ months outside the US without reentry permit

2. This resets her eligibility for naturalization, as breaks continuous presence test (for USCIS)

3. Her claiming to be non-resident for US tax purposes can bar her from becoming a US citizen in the future. N-400 form has question :

 

"Since you became a lawful permanent resident, have you called yourself a "nonresident alien" on a  Federal, state, or local tax return or decided not to file a tax return because you considered yourself to  be a nonresident? "

1 and 2 are very important points but I would argue that claiming the Foreign Earned Income Exclusion using the physical presence test does not constitute calling yourself a nonresident alien on a tax return, as long as they are filing jointly (which implies being treated as a resident for tax purposes).

Edited Thursday at 05:36 AM by JKLSemicolon

[OldUser 8,055]

4 minutes ago, JKLSemicolon said:

1 and 2 are very important points but I would argue that claiming the Foreign Earned Income Exclusion using the physical presence test does not constitute calling yourself a nonresident alien on a tax return, as long as they are filing jointly.

I'm not a tax expert, it just appears to me OP wants to save some bucks on tax. I cannot rule out all possible creativity that goes into that. I wouldn't bother doing any of this to stay out of trouble with USCIS down the line unless savings can justify it

Edited Thursday at 05:36 AM by OldUser

[Tesco 82]

Untimely you can file a 1116, (general category) even if you qualify for FEIE. You can only change this election every 5 years.  If there is a credit of tax paid, (foreign country has a higher rate), the surplus credit can be carried back for 1 year and forward for 10. 

[jaywave 2]

On 2/26/2025 at 9:10 PM, OldUser said:

Nobody can ever give 100% gurantee she'll be fine spending 6+ months outside the US without reentry permit

Do you know any example in the Forum about someone having an issue entering back in the country after 6+ months, but less than a year?

 

 

On 2/26/2025 at 11:35 PM, OldUser said:

I'm not a tax expert, it just appears to me OP wants to save some bucks on tax. I cannot rule out all possible creativity that goes into that. I wouldn't bother doing any of this to stay out of trouble with USCIS down the line unless savings can justify it

I'm saving no bucks at all. I just want to file my taxes correctly. I don't want to have any issues with the IRS.

 

On 2/26/2025 at 11:31 PM, JKLSemicolon said:

And what about in 2023? We need to know both years to consider the possible 12-month periods ending in tax year 2024. Also, when did she become a permanent resident? Your timeline is empty.

My wife was in her home country for all of 2023.

@TescoI'm planning to just file a 1116 because she was already taxed in her home country.

Has anyone have experience filing a 1116?

 

[Tesco 82]

3 hours ago, jaywave said:

Do you know any example in the Forum about someone having an issue entering back in the country after 6+ months, but less than a year?

 

 

I'm saving no bucks at all. I just want to file my taxes correctly. I don't want to have any issues with the IRS.

 

My wife was in her home country for all of 2023.

@TescoI'm planning to just file a 1116 because she was already taxed in her home country.

Has anyone have experience filing a 1116?

 

 

3 hours ago, jaywave said:

Do you know any example in the Forum about someone having an issue entering back in the country after 6+ months, but less than a year?

 

 

I'm saving no bucks at all. I just want to file my taxes correctly. I don't want to have any issues with the IRS.

 

My wife was in her home country for all of 2023.

@TescoI'm planning to just file a 1116 because she was already taxed in her home country.

Has anyone have experience filing a 1116?

 

Use the exchange rate effective when payment was received. You may also use the IRS average exchange rate if foreign income is spread over  the year. Use the ‘General’ category of income. Pretty much all software, (TaxAct for example) handle this. 

[JKLSemicolon 442]

6 hours ago, jaywave said:

My wife was in her home country for all of 2023.
 

If you have already made up your mind that’s fine, but based on that you would definitely qualify for the Foreign Earned Income exclusion and the qualifying period that would allow you to exclude the most income would be something like July 28, 2023 to July 27, 2024. During that time the physical presence test would be met since the time spent in the US during that period would be the 31 days from April 1 to May 1, 2024 making the time outside of the US 365 - 31 = 334 days. Using this period, the number of qualifying days in tax year 2024 would be 209 (January 1 to July 27) and the maximum income possible to exclude would be (209/365)*$120,000 = $68,712.

 

Just for comparison, using a qualifying period of April 1, 2023 to March 31, 2024 would also obviously meet the physical presence test, but in that case the maximum income possible to exclude would be 91/365 * $120,000 = $29,918. And obviously there are any number of qualifying periods in between.

 

Typically when qualifying for both the FEIE and the Foreign Tax Credit, one would want to compare the two and see how your return is impacted using one versus the other.

Edited yesterday at 10:53 AM by JKLSemicolon
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