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A US citizen who pays foreign taxes on income is allowed a tax credit for the amount paid up to the amount that would have been owed to the US. Example: US citizen has $100,000 of income taxed in a foreign country that results in foreign taxes of $15,000. The US citizen files a US tax return on the same income resulting in US tax of $20,000. The US citizen would get a credit against his $20,000 of $15,000 resulting in a net liability to the US of $5,000. If the foreign tax paid was greater than $20,000 the credit would be limited to $20,000.
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