Income Re‑sourced by Treaty refers to income that is normally considered U.S.‑source income, but is treated as foreign‑source because of a tax treaty between the United States and another country. This re‑sourcing allows taxpayers to claim a Foreign Tax Credit on income that would otherwise not qualify under U.S. sourcing rules.
Under a treaty’s re‑sourcing provision, all of your income—foreign and U.S.—may be treated as income from the treaty country when determining the foreign tax credit for that country.
You must file a separate Form 1116 for each treaty country for which income is re‑sourced. The amount you enter in this section of the program flows to Line 30 of Form 1116.
✅ When to Report Income in This Section
Report income here only if:
1. A U.S. income tax treaty applies to you
You worked in or earned income connected to a country that has an income tax treaty with the United States.
The U.S. is party to tax treaties designed to prevent double taxation, and certain treaties allow U.S.‑source income to be treated as foreign‑source solely for foreign tax credit purposes.
2. The treaty contains a “re‑sourcing” provision
A treaty sourcing rule treats your U.S.-source income as foreign source, and you elect to apply the treaty.
If you make this election, you must treat the income as foreign to the extent required by the treaty. [irs.gov]
3. You need the income to be treated as foreign to claim the credit
Re‑sourcing is used when the foreign country taxes U.S.-source income under the treaty, and you need the income categorized as foreign‑source to compute a proper Foreign Tax Credit.
✅ Examples of Income That May Be Re‑sourced by Treaty
You may need to report U.S.-source income here if the treaty explicitly re‑sources it, including:
- Wages or self‑employment income performed in the U.S. but taxed by the treaty country due to residency rules
- Pensions, Social Security, or retirement payments treated as taxable only in your treaty country of residence
- Interest, dividends, or capital gains taxed by the treaty partner due to special treaty provisions
(Each treaty is unique — the specific article in the treaty determines which income is re‑sourced.)
If a treaty provision allows the re‑sourcing, then the income is treated as foreign‑source and must be reported under this category.
✅ Important Requirements
✅ Separate Form 1116 Required
You must compute a separate foreign tax credit limitation for each amount of re‑sourced income from each treaty country.
Use a separate Form 1116 for each treaty‑affected income group.
✅ Treat Only the Treaty‑Specified Income as Foreign
Only the income explicitly re‑sourced by the treaty should be reported here — not all foreign income.
General foreign income belongs in other categories such as General, Passive, Branch, etc.
✅ Possible Additional Reporting
If you claim a foreign tax credit because of a treaty provision, you may need to file Form 8833 (Treaty-Based Return Position Disclosure).
✅ Where to Enter in the Program
To report Income Re‑sourced by Treaty:
Federal → Deductions → Select My Forms → Credits → Foreign Tax Credit → Form 1116 → Income re‑sourced by treaty