how do the foreign tax credit and foreign earned income exclusion differ 
two ways to avoid double taxation on the income you earn while living abroad are the foreign tax credit and the foreign earned income exclusion a key difference is the income to which each applies the foreign tax credit applies to earned and unearned income such as dividends and interest conversely the foreign earned income exclusion applies only to earned income 27who can claim the foreign tax credit if you are a u s citizen the u s taxes your worldwide income no matter where you live to avoid double taxation the u s lets you tax credit for foreign taxes you pay or accrue u s citizens and resident aliens who paid foreign income tax and are subject to u s tax on that same income can take the foreign tax credit a nonresident alien can take the credit if they were a bona fide resident of puerto rico for the entire tax year or paid foreign income taxes connected to a trade or business in the u s 10the bottom linethe foreign tax credit is a u s tax break that offsets income tax paid to other countries to qualify the tax must be imposed on you by a foreign country or u s possession and you must have paid the tax taxes on income wages dividends interest and royalties generally qualify for the foreign tax credit 