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A credit is allowed for foreign income taxes paid or accrued. The credit is limited compared to that part of Ough.S. tax due to foreign source income. It's not at all refundable, but any excess credit end up being the carried to other years to reduce tax.

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Example: Mary, an American citizen, is single and lives in Bermuda. She earns a salary of $450,000. Part of Mary's income will be subject to U.S. income tax at the 39.6% tax rate.

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