Foreign dividends usually lose a slice to the company's home government before they reach you, and ADR holders also pay a small depositary fee. In a taxable account, much of that foreign tax comes back as a U.S. credit. In an IRA, it usually does not. This calculator shows each step.
How the calculation works
- Foreign withholding. The home country takes its rate off the top. Whether you pay the full statutory rate or the lower treaty rate depends on how your ADR depositary or broker handles documentation. See how withholding works.
- Depositary fee. ADR holders usually pay a per-share service fee, often deducted straight from the dividend. See ADR fees.
- U.S. tax. The IRS taxes the full gross dividend, not just the cash you received.
- Foreign tax credit. In a taxable account you can generally credit foreign tax up to the treaty rate against the U.S. tax on that income. The calculator caps the credit at the U.S. tax on this dividend, a simplified version of the Form 1116 limitation. See the foreign tax credit.
Simplified on purpose
Real returns depend on your full tax picture. Treat the output as an illustration of the mechanics, not a tax calculation for your return.
For every country's rate in one table, see withholding rates by country.
Common questions
Is the result exact?
No. It is an estimate for a single dividend. Your actual foreign tax credit depends on your whole return, including the credit limitation on Form 1116, other foreign income and your tax bracket. Use it to understand the mechanics, then confirm with your tax software or preparer.
Why does the calculator separate the treaty rate from what was withheld?
Only foreign tax up to the rate you were legally entitled to under the treaty counts toward the U.S. foreign tax credit. Anything withheld above that rate must be reclaimed from the foreign country, or it is lost.
What about Australian franked dividends?
Fully franked dividends paid by Australian companies to non-residents generally carry no withholding. Unfranked dividends are subject to withholding. Choose 'Custom rate' to model a partly franked dividend.
Sources
Educational content only, not investment, tax or legal advice. The Stateside Report does not recommend buying or selling any security. Tax rules depend on your situation; confirm with a qualified tax professional. Full disclosures.