Who May Take the Credit?

Foreign Tax Credit and Puerto Rico Residents

U.S. citizens who live in Puerto Rico compute both their U.S. taxes and their Puerto Rico taxes based on their worldwide income. In the US return they will exclude the income that is sourced in Puerto Rico. The income earned as a federal employee in Puerto Rico must be reported on both returns: Puerto Rico Treasury Department and to the U.S. Internal Revenue Service.

These taxpayers may take the foreign tax credit to reduce their U.S. tax liability.

Foreign tax credit, like other nonrefundable credits discussed in the Basic and Advanced Courses, is a dollar-for-dollar reduction in the amount of tax. However, in some cases, not all taxes paid to a foreign government or a U.S. Possession (Puerto Rico) can be used in the computation of the foreign tax credit.