What is Form 1118? Foreign tax credit for US corporations - Complete guide
Form 1118 (Foreign Tax Credit–Corporations) is the IRS form used to claim a credit for income taxes paid or accrued to foreign countries or US territories. It is filed by C-corporations under IRC Section 901, by individuals making a section 962 election, and by foreign corporations claiming a section 906 credit on effectively connected income.
The form prevents double taxation of the same corporate income. Current revision: Rev. December 2025.
The latest revision replaced “possessions” with “territories” throughout the form, split Schedule B column 2(b) into sub-columns for PTEP tracking, and added a new Schedule G line H for taxes disallowed under Section 960(d)(4).
This guide covers who files Form 1118, how the foreign tax credit for corporations works across all 12 schedules, GILTI mechanics on Schedule D, the nine income categories, and the 2025 legislative changes from the One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025).
Who must file Form 1118?
Form 1118 is filed by C-corporations electing the foreign tax credit under IRC Section 901, individuals making a section 962 election, and foreign corporations claiming a section 906 credit on effectively connected income.
The filing covers the separate foreign tax credit categories, including section 951A, foreign branch, passive, section 901(j), and treaty-resourced categories, plus the related taxes reported on Schedule B.
| Situation | File Form 1118? |
|---|---|
| C-Corp with foreign branch income | Yes |
| C-Corp owning 10%+ of a Controlled Foreign Corporation (CFC) | Yes |
| C-Corp with foreign dividend withholding | Yes |
| S-Corp, partnership, LLC | No – S corporations and partnerships do not file at the entity level; individual owners may file Form 1116 |
| An individual with a Section 962 election | Yes |
The C-Corporation foreign tax credit is elective rather than automatic. A corporation that pays foreign tax but does not need the credit in the current year can deduct it instead.
Even without electing the credit, a corporation must still attach certain schedules if it maintains Overall Foreign Loss (OFL), Overall Domestic Loss (ODL), or Separate Limitation Loss (SLL) account balances.
These three loss accounts affect credits available in future years and are tracked annually on Schedule J.
Should I file Form 1118 or Form 1116?
Form 1118 is filed by corporations and by individuals who make a section 962 election. Form 1116 is for individuals, estates, and trusts; S corporations and partnerships do not file Form 1116 at the entity level. The two forms are not interchangeable – entity type determines which applies.
The Form 1118 vs Form 1116 choice is settled before any calculation begins. Each form has its own schedules, category count, and credit mechanics, and C-Corp returns interact with GILTI, CAMT, and corporate-specific rules that do not apply to individual filers.
The key difference is taxpayer type: Form 1118 is the corporate foreign tax credit form, while Form 1116 also uses separate categories such as passive, general, foreign branch, section 951A, section 901(j), and certain treaty-resourced categories.
| Feature | Form 1118 (Corporations) | Form 1116 (Individuals) |
|---|---|---|
| Who files | C-Corps, Section 962 individuals | Individuals, estates, and trusts |
| Income categories | Up to 9 | Multiple (passive, general, foreign branch, 951A, 901(j), and treaty-resourced) |
| GILTI credit | Yes – Schedule D | No |
| CAMT credit | No – use Form 4626 | N/A |
| Carryforward | 10 years (except GILTI) | 10 years |
| Carryback | 1 year (except GILTI) | 1 year |
For the full walkthrough on the individual side, see the complete guide to Form 1116 for US expats.
What are the income categories on Form 1118?
Form 1118 requires a separate copy of the form for each applicable income category. The IRS defines nine category codes for corporations. The four most common are General (GEN), Passive (PAS), Foreign Branch (FB), and Section 951A / GILTI. Credits from one category cannot offset tax on income in another.
Under IRC Section 904(d), each category has its own FTC limitation. The IRS refers to these as income baskets on Form 1118 – credits are pooled inside each basket, but cannot leak between them.
A corporation with both foreign branch income and passive dividends must file 2 separate Form 1118 copies – one per category – with independent FTC limitation calculations for each category.
| Category code | Income type | Corporate scenario |
|---|---|---|
| GEN – General | Active business income | Foreign subsidiary operations |
| PAS – Passive | Dividends, interest, royalties | Foreign investment portfolio |
| FB – Foreign Branch | Branch profits and losses | US corp with a foreign branch reported on Form 8858 |
| 951A – GILTI | CFC tested income above QBAI threshold | Parent owning 10%+ of CFC |
| 901j | Income from sanctioned countries | Rare; separate form required |
The foreign branch category (FB) covers profits and losses from a US corp's overseas operations, often reported alongside Form 8858. The Section 951A basket captures inclusions under the GILTI tax regime for US corporations – note that OBBBA eliminates QBAI (Qualified Business Asset Investment) and renames the regime Net CFC Tested Income (NCTI) for tax year 2026.
Form 1118 schedules: Complete overview
Form 1118 Rev. December 2025 organizes the foreign tax credit calculation across 12 schedules.
Complete separate Schedule A; Schedule B, Parts I and II; Schedules C through G; Schedule I; Schedule K; and Schedule L, Parts I, II, III, and V for each applicable category. Complete Schedule B, Part III; Schedule H; Schedule J; and Schedule L, Part IV once.
Schedule A – Income or loss
Schedule A reports gross income and loss from each foreign income category before adjustments. A separate Schedule A column is completed for each applicable income category code.
Schedule B – Foreign tax credit
Schedule B lists all foreign taxes paid or accrued by country and income category. The Rev. December 2025 update split column 2(b) into sub-columns, including a new column 2(b)(2) for PTEP (Previously Taxed Earnings and Profits) codes on Section 959(a) distributions.
Schedule H – Apportionment of certain deductions
Schedule H covers the apportionment of certain deductions and is completed once for the return. The foreign tax credit limitation is calculated on Schedule B, Part II, separately for each income category under IRC Section 904(d), with line-by-line guidance in the Form 1118 instructions.
Based on a TFX client case: a US C-Corp has $500,000 of foreign branch income, $2,000,000 of worldwide income, and $420,000 of US tax before credits. The FTC limitation works out to ($500,000 ÷ $2,000,000) × $420,000 = $105,000 maximum credit for the FB category.
Schedule J – OFL, ODL, and SLL adjustments
Schedule J (separate schedule, Rev. December 2020) computes adjustments to separate limitation income or loss for limitation fraction numerators. It also tracks OFL (Overall Foreign Loss), ODL (Overall Domestic Loss), and SLL (Separate Limitation Loss) account balances.
The Form 1118 Sch J is required even when a corporation does not elect the foreign tax credit, as long as these account balances exist. The Form 1118 Schedule J instructions explain how each loss type recaptures into US-source income in later years.
Note that GILTI deemed-paid credits are computed on Schedule D, not Schedule J. The GILTI credit is subject to an 80% haircut under Section 960(d), and unused GILTI credits cannot be carried forward or back.
Schedule K – Foreign tax carryover reconciliation
Schedule K reconciles prior-year foreign tax carryover balances with the current-year carryover. The Form 1118 Schedule K tracks unused credits by year of origin, current-year credit usage, and remaining carryforward balance across the 10-year carryforward period under IRC Section 904(c).
Schedule L – Foreign tax redeterminations
Schedule L (Rev. December 2025) reports foreign tax redeterminations occurring in the current tax year that relate to prior tax years. Form 1118 Sch L may be required even when the redetermination does not change the current US tax liability.
The Schedule L Form 1118 instructions define a redetermination as a change in the foreign tax liability that affects the US foreign tax credit – including refunds, additional assessments, and exchange-rate adjustments.
Schedules C, D, E, G, and I – Supporting calculations
The following five supporting schedules handle specialized categories of deemed-paid taxes and required reductions:
- Schedule C: taxes deemed paid on Section 951(a)(1)(A) Subpart F inclusions.
- Schedule D: taxes deemed paid on Section 951A GILTI inclusions (80% haircut applies for tax year 2025).
- Schedule E: taxes on PTEP distributions, updated in Rev. December 2025 for Section 951A PTEP tracking.
- Schedule G: required reductions to taxes paid, including new line H for Section 960(d)(4)-disallowed taxes (One Big Beautiful Bill Act, July 4, 2025).
- Schedule I: foreign oil and gas income reductions under Section 907.
How does GILTI affect Form 1118?
When a US C-Corporation includes GILTI (Global Intangible Low-Taxed Income) under IRC Section 951A, it may claim foreign tax credits for taxes paid by its CFCs via Schedule D on Form 1118. These credits are subject to an 80% haircut under Section 960(d) and cannot be carried forward or back if unused.
The GILTI Form 1118 treatment differs from the regular FTC mechanics in three ways: credits run through Schedule D, only 80% of the tested foreign taxes are creditable, and any excess credit is permanently lost at year-end.
For tax year 2025, the 80% haircut continues to apply as enacted under the Tax Cuts and Jobs Act. Starting with tax years beginning after December 31, 2025, the One Big Beautiful Bill Act increases the deemed-paid credit to 90% and renames the regime Net CFC Tested Income (NCTI).
Corporations filing 2026 returns will see a 10% haircut instead of 20%, but credits will still be non-carryable.
The bill also added Section 960(d)(4), which introduces a separate 10% disallowance for taxes attributable to PTEP distributions arising from post-June 28, 2025, Section 951A inclusions.
Schedule D: The 80% haircut explained
Section 960(d) limits the GILTI deemed-paid credit to 80% of the tested foreign income taxes allocated to GILTI income for tax year 2025.
Based on a TFX client case: a CFC pays $100,000 of tested foreign taxes, and the US parent's GILTI inclusion percentage is 100%. The maximum deemed-paid credit is $100,000 × 80% = $80,000. The remaining $20,000 is non-creditable and expires at year-end.
The Section 960 deemed-paid credit is one of the few US foreign tax credits that cannot be carried forward or back, which is why the 80% haircut on GILTI can become a permanent cost for high-taxed CFCs.
Section 960(d)(4), added by the One Big Beautiful Bill Act (Public Law 119-21, July 4, 2025), additionally disallows credits for 10% of taxes on Section 959(a) PTEP distributions where the PTEP arose from a Section 951A inclusion made after June 28, 2025.
When can a corporation use the GILTI high-tax exclusion?
The GILTI High-Tax Exclusion (HTE) applies when a CFC's effective foreign tax rate on a tested unit exceeds 18.9%, which is 90% of the 21% US corporate rate. When HTE applies and is properly elected on Form 8992, Schedule D of Form 1118 is not completed for that excluded income, and the 80% haircut is avoided entirely.
Example: a CFC earns $1,000,000 and pays $250,000 in foreign taxes. The effective rate of 25% exceeds the GILTI 18.9% threshold, so this income can be excluded from GILTI via the GILTI high-tax exclusion on Form 1118.
For full HTE election guidance, see GILTI High-Tax Exception: when and how to elect it.
Can unused Form 1118 credits be carried forward or back?
Unused general and passive category credits on Form 1118 carry back 1 year (amended Form 1120-X required) and forward 10 years via Schedule K, per IRC Section 904(c). The exception is Section 951A / GILTI credits – these expire at year-end and cannot be carried forward or back.
General and passive category credits carry forward 10 years and back 1 year; GILTI (Section 951A) credits expire unused – no carryover is allowed.
| Feature | General / Passive | GILTI (951A) |
|---|---|---|
| Carryback | 1 year – Form 1120-X | Not allowed |
| Carryforward | 10 years – Schedule K | Not allowed |
| FIFO rule | Yes – oldest credits first | N/A |
The Form 1118 carryforward mechanism uses a FIFO (first-in, first-out) ordering, so older credits are consumed first to prevent expiration. A Form 1118 carryback is claimed by filing an amended Form 1120-X for the prior year and recomputing the FTC limitation under that year's rules.
The foreign tax credit corporations' carryover rules are narrower than the individual carryover rules in two respects: GILTI credits never carry, and oil-and-gas extraction income (Schedule I) is subject to additional limits under IRC Section 907(f).
For a complete walkthrough including Form 1116 rules, see the Foreign Tax Credit Carryover and Carryback Guide (2026).
How to file Form 1118: Step-by-step
Form 1118 is filed as an attachment to Form 1120 (or Form 1120-F for foreign corporations). The deadline for calendar-year C-Corporations is April 15, 2026, extendable to October 15, 2026, by filing Form 7004.
The following eight steps outline how a C-Corporation completes and files Form 1118 for tax year 2025:
-
Identify all foreign taxes paid or accrued, broken down by country and income category.
-
Determine applicable income categories (GEN, PAS, FB, 951A, etc.) and file one Form 1118 per category.
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Complete Schedule A for each category – gross income and loss.
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Complete Schedule B – list taxes by country, noting the Rev. December 2025 column 2(b) split for PTEP tracking.
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Complete Schedule D if GILTI inclusions exist, which applies to 10%+ CFC ownership.
-
Complete Schedule H for the apportionment of certain deductions.
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Complete Schedule K to reconcile carryover from prior years.
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Attach Form 1118 to Form 1120 and enter the allowable credit on Form 1120, Line 5c.
The Form 1118 instructions document each step line by line in the Rev. December 2025 IRS guidance. The 2026 filing deadline of April 15 applies to calendar-year corporations; fiscal-year filers use the 15th day of the fourth month following year-end.
Form 1118 is not used for CAMT (Corporate Alternative Minimum Tax) under Section 55 – use Form 4626 for CAMT foreign tax credit purposes.
Conclusion
Form 1118 key takeaways:
- Entity: C-corporations, individuals making a section 962 election, and foreign corporations claiming a section 906 credit.
- Carryforward: 10 years for general/passive credits – 0 years for GILTI.
- GILTI 80% haircut: max credit = 80% of deemed-paid taxes (tax year 2025).
- HTE threshold: 18.9% effective foreign rate.
- Rev. December 2025: Schedule G line H for Section 960(d)(4).
- CAMT: use Form 4626, not Form 1118.
Form 1118 is the foreign tax credit gatekeeper for every US C-Corporation with cross-border operations – and getting it wrong typically costs more than getting it right.
Between the nine income categories, the GILTI 80% haircut on Schedule D, the OBBBA changes effective for tax year 2026, and the standalone CAMT rules on Form 4626, the form rewards precision and punishes assumptions.
TFX provides full corporate tax services for US C-Corporations and Section 962 filers, including Form 1118, Form 5471 filing requirements for CFC owners, GILTI planning, and a foreign company tax reporting guide for US corporations.
FAQ
The following 10 questions address the most common filing scenarios and errors for Form 1118:
Form 1118 is filed by C-corporations, individuals making a section 962 election, and foreign corporations claiming a section 906 credit. Form 1116 is for individuals, estates, and trusts. Form 1118 covers up to nine income categories and includes Schedule D for GILTI deemed-paid credits, which Form 1116 does not have.
Yes – for general and passive category credits: a 10-year carryforward and 1-year carryback apply under IRC Section 904(c). No – for Section 951A / GILTI credits: these expire at year-end and cannot be carried forward or back.
Any C-corporation that elects the foreign tax credit on Form 1118 under IRC Section 901 must file it. The same applies to individuals making a section 962 election and to foreign corporations claiming a section 906 credit on effectively connected income.
Schedule J tracks adjustments to separate limitation income or loss accounts and maintains OFL (Overall Foreign Loss), ODL (Overall Domestic Loss), and SLL (Separate Limitation Loss) balances. It is required even when a corporation does not elect the foreign tax credit, if these accounts exist.
Under Section 960(d), the GILTI deemed-paid credit is capped at 80% of the tested foreign taxes allocated to GILTI income for tax year 2025. Example: a CFC pays $100,000 in tested foreign taxes, so the maximum credit is $80,000. The remaining $20,000 expires at year-end with no carryover.
No. CAMT (Corporate AMT) foreign tax credit computations use Form 4626, not Form 1118. Form 1118 applies only to the regular corporate income tax under Section 11.
Three key changes: (1) Schedule B column 2(b) was split into sub-columns for PTEP codes; (2) Schedule E Part I was updated for taxes on Section 951A PTEP distributions; (3) Schedule G received a new line H for Section 960(d)(4)-disallowed taxes, added by the One Big Beautiful Bill Act (Public Law 119-21, July 4, 2025).
The HTE threshold is 18.9%, which is 90% of the 21% US corporate tax rate. If a CFC's effective foreign tax rate on a tested unit exceeds 18.9%, the income can be excluded from GILTI via an election on Form 8992. When HTE applies, Schedule D on Form 1118 is not required for that income.
No. S-Corporations are pass-through entities and do not file Form 1118. Shareholders of an S-Corporation who receive foreign income allocations use Form 1116 on their personal returns.
One complete Form 1118 must be filed for each applicable income category. A corporation with both foreign branch income and GILTI inclusions would file two separate copies – one with code FB and one with code 951A. Schedule B, Part III; Schedule H; Schedule J; and Schedule L, Part IV are completed once per return.
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