Frequently Asked Questions
- Year-End Tax Forms and Statements
- Composite Form 1099
- Form 1099-DIV
- Form 1099-B
- Cost Basis Reporting Information
- Form 1099-Q
- Form 1099-R
- Form 5498 and Form 5498-ESA
- Form 1042-S
- Tax Withholding for Retirement Accounts
- Capital Gains—Long-Term, Short-Term
- Direct U.S. Government Obligation
- Foreign Source Income/Foreign Tax Paid
Foreign source income is income earned by the fund from investments in foreign securities. A shareholder's foreign source income is determined by the foreign source income received by the fund, net of expenses.
Some Franklin Templeton U.S. mutual funds invest in foreign securities. Many countries impose a foreign withholding tax on investment income earned by the fund. Foreign tax paid is the foreign withholding taxes paid by a fund on its investments in foreign securities.
The foreign tax paid and foreign source income are reported on Form 1099-DIV. We value the feedback we’ve received from shareholders, so we’re diligently working to provide this tax form before the IRS mailing deadline of February 17. It should also be available online no later than February 13, but we’re striving to have it available even earlier. Registered shareholders can view their year-end tax forms when logged into franklintempleton.com. Login to your account or register now for account access.
Treatment as a foreign tax credit or as a deduction will depend upon the personal tax situation of each individual shareholder. The instructions for Form 1116, Foreign Tax Credit, and IRS Publication 514, Foreign Tax Credit for Individuals, provide general information on this subject. Please consult your tax advisor for any additional information and for the appropriate treatment in your case.
Shareholders with foreign tax paid and reported in Box 6 of Form 1099-DIV, may be eligible to claim this tax paid as a foreign tax credit or as a deduction on their federal income tax returns.
To choose the credit, an individual shareholder may have two options:
- If the shareholder qualifies for the Simplified Reporting method, they generally can report the foreign taxes paid as a tax credit directly on the foreign tax credit line of Form 1040, without regard to any foreign tax credit limitations and without filing Form 1116.
- If the shareholder does not qualify for the Simplified Reporting method, the shareholder would generally be required to file Form 1116 to get the benefit of the foreign tax credit.
Please see "Do I qualify for the Simplified Reporting Method?" below for more information. The instructions for Form 1116, Foreign Tax Credit, and IRS Publication 514, Foreign Tax Credit for Individuals, also provide additional information on this subject. Please consult your tax advisor for any additional information and for the appropriate treatment in your case.
If you are an individual shareholder, you may claim the foreign tax credit without filing Form 11161 if you meet all of the following conditions:
- All of your foreign source gross income for the tax year is passive income such as dividends or interest and is reported on Form 1099-DIV2.
- Your total foreign taxes paid as reported on Form 1099-DIV are not more than $300 ($600 if married filing jointly).
If you meet these conditions, you may be eligible to claim your foreign tax credit directly on Form 1040, line 47, without regard to foreign tax credit limits and without filing Form 1116.
If you choose to claim a foreign tax credit and are required to file Form 1116, you are required to report your share of foreign taxes paid and foreign source income. Foreign taxes paid and foreign source income required for this form are reported to you on Form 1099-DIV. You may also visit fund search to obtain foreign taxes paid, foreign source income and foreign qualified dividends as designated by your fund.
Individual taxpayers that prefer to take foreign tax paid as an itemized deduction may report the Form 1099-DIV, Box 6, amount on Form 1040, Schedule A. You are not required to complete Form 1116 if you claim foreign tax paid as a deduction on your tax return.
To claim the foreign tax credit, you must have held your shares in a fund for a minimum of 16 days during the 31-day period beginning 15 days before the ex-dividend date of the fund's distribution to which the foreign taxes relate.
Foreign qualified dividends are the foreign source qualified dividends the fund paid to a shareholder, plus any foreign taxes withheld on these dividends. These amounts represent the portion of the foreign source income reported to a shareholder that were derived from qualified foreign securities held by the fund. Individual shareholders may find this information helpful when calculating the foreign source income adjustment needed to complete Form 1116. Please consult your tax advisor for any additional information and for the appropriate treatment in your case.
A dividend is treated as a qualified dividend eligible for the lower rates only if certain holding period requirements are met. Under current law, shareholders must hold their mutual fund shares for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date.
Important Legal Information
The information contained in this Tax Center is not intended to be a complete discussion of all federal or state income tax requirements. This information cannot be used by an investor to avoid any income tax penalties that may be imposed under the Internal Revenue Code. Investors should seek advice from a financial and/or tax advisor about the potential tax implications of their investments in Franklin Templeton fund(s) based on their individual circumstances.
- If you have any excess foreign tax credits from prior years, you will not be able to carry these excess credits over into the current year unless you file Form 1116.
- If you have foreign taxes paid that were reported to you on a qualified payee statement (Form 1099-DIV from other companies, or Schedule K-1 for trusts, partnerships or S corporations) from other investments, you must ensure that all of your foreign taxes are eligible for the credit. Please see the instructions for Form 1116 or consult your tax advisor.
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