Question

The (1) (2) credit is claimed by taxpayers for the income taxes they pay in other countries. This credit may be restricted if the effective tax rate on the international earnings is (3) (higher/lower) than the effective U.S. tax rate on the international earnings.

a) Foreign Tax, Higher
b) International Tax, Lower
c) Foreign Tax, Lower
d) Global Tax, Higher

Answer 1

The Foreign Tax credit is claimed by taxpayers for the income taxes they pay in other countries. This credit may be restricted if the effective tax rate on the international earnings is lower than the effective U.S. tax rate on the international earnings.

Step-by-step explanation:

The correct answer is option c) Foreign Tax, Lower.

The (1) Foreign Tax credit is claimed by taxpayers for the income taxes they pay in other countries. This credit may be restricted if the effective tax rate on the international earnings is (3) lower than the effective U.S. tax rate on the international earnings.

For example, if a U.S. taxpayer earns income in a foreign country and pays a higher tax rate in that country than the U.S. tax rate, they can claim the Foreign Tax credit to reduce their U.S. tax liability. However, if the taxpayer pays a lower tax rate in the foreign country compared to the U.S. tax rate, the Foreign Tax credit may be limited or not applicable.