You may be eligible to claim your foreign tax credit directly on Schedule 3 (Form 1040), line 1, without filing Form 1116. If you are not eligible to report a foreign tax credit directly on Schedule 3 (Form 1040), you must file Form 1116 as part of your income tax return. Corporations must use Form 1118.

Shareholders completing Form 1116 for tax year 2023 are not required to report foreign taxes paid on a country-by-country basis on income paid from a mutual fund. To complete Part I of Form 1116, calculate your total income from foreign sources paid by the fund by multiplying the amount on Box 1a of your 1099-DIV by the percentage found in the following table and enter the result on line i. Enter "RIC" on line i. Enter foreign taxes paid from Box 7 of 1099-DIV in Part II of the form.

Please visit the Foreign Tax Credit section of the Tax Center for information on foreign sourced income and foreign qualified dividends.

Please note, however, that completing Form 1116 (or Form 1118) still involves several other steps, which are detailed in the IRS Instructions of these Forms.

In general, you may be able to claim the foreign tax credit without filing Form 1116. By making this election, the foreign tax credit limitation won't apply to you. This election is available only if you meet all of the following conditions:

1. All of your foreign source gross income was from the "passive income" category (which includes most interest and dividends) and reported to you on a qualified payee statement (e.g., Form 1099-INT, Form 1099-DIV, Schedule K-1, Schedule K-3 or similar substitute statement);
2. Your total creditable foreign taxes from all such statements was not more than $300 ($600 if married filing a joint return);
3. You held your Harbor Funds shares for at least 16 days including the ex-date of the dividend which was December 19, 2023, and weren’t obligated to pay these amounts to someone else.

In order to make this election certain rules apply, please see instructions to Form 1116 and Form 1040. Consult your tax adviser about the election and whether it is appropriate in your situation.

To claim a foreign tax deduction, you list the foreign taxes with other deductible taxes on Schedule A of your individual income tax return. (Corporations can deduct foreign taxes by listing them on the appropriate line of Form 1120.) Generally, if you claim a credit for any portion of your allowable foreign taxes, you may not claim any part of your remaining allowable foreign taxes as a deduction. However, certain restrictions do exist. Please see instructions for Form 1116 for additional information.

There are several factors that can affect this relationship. For example, it can be related to the specific tenets of a tax treaty between the U.S. and a foreign country the fund is trading in. It could also be related to the holding period of the underlying security or dividends received from U.S. holding or other factors. In 2023, five Harbor funds, the Diversified International All Cap Fund, the International Fund, the International Core Fund, the International Growth, the International Small Cap Fund, and one Harbor ETF, the International Compounders ETF elected to pass through to their respective shareowners, foreign taxes paid by the funds. As a result, the total taxable income reported to you in Box 1a of Form 1099-DIV includes not only the distributions you received, including the reinvestment in additional fund shares, but also the amount of foreign taxes passed through to you. The taxes passed through to you are included in Box 7 of your Form 1099-DIV and can generally be claimed by you on your income tax return as if you had directly paid that amount as tax to a foreign country. This amount can generally be claimed by you as either an itemized deduction or as a foreign tax credit. You may only claim the amount in Box 7 as a deduction or a credit if you held your shares for at least 16 days during the 31-day period beginning 15 days before the ex-dividend date. The ex-dividend date for Harbor Funds listed above was December 19, 2023. The ex-dividend date for International Compounders ETF was December 21, 2023.

You should consult your tax adviser regarding your specific situation.

Please see IRS Publication 514, Foreign Tax Credit for Individuals, or consult your tax adviser. Be sure to give to your adviser the materials you received from Harbor Funds.

We are required to include this amount in Box 1a in order to provide a tax benefit to shareholders.

No, you may not claim a deduction or credit if your account is an IRA or a retirement account. Since earnings within a tax qualified plan are not currently taxable, you are not allowed to claim a foreign tax credit or deduction on your individual income tax forms.

The foreign taxes that Harbor Funds paid can be used by certain shareholders of Harbor Funds as either a tax credit or a tax deduction on their U.S. income tax return. Using the foreign taxes as a deduction or credit enables shareholders to reduce or eliminate any double taxation on the distribution by Harbor Funds of its earnings which had already been subject to a foreign tax.

You must file Form 1040 (for individuals) or Form 1120 (for corporations) to claim this deduction or credit.

IRS instructions for Form 1116-Foreign Tax Credit - Individuals state that generally you cannot claim the credit. The instructions further state that you may, however, be able to claim the credit if you are a resident of Puerto Rico during your entire tax year, or you are a nonresident alien who pays or accrues tax to a foreign country or U.S. possession on income from foreign sources that is effectively connected with a trade or business in the United States. Please see the Instructions for Form 1116 and IRS Publication 519, U.S. Tax Guide for Aliens, for more information, including certain exceptions.

You must have held your shares of Harbor Funds (Diversified International All Cap Fund, International Fund, International Core Fund, International Growth Fund, and the International Small Cap Fund ) for at least 16 days including the ex-dividend date (December 19, 2023) between December 4, 2023 and January 3, 2023 to claim a foreign tax credit. For International Compounders ETF you must have held shares, for at least 16 days including the ex-dividend date ( December 21, 2023), between December 6, 2023 and January 5, 2024.

Yes. One situation is when you are not eligible to claim a credit. Another situation in which a deduction should be considered is when the credit you can claim is limited to an amount which is less than your share of foreign taxes paid. There may be other situations where a deduction may be more beneficial. You should consult your tax adviser to determine which approach is more beneficial to your individual situation.

A tax credit is generally more beneficial than a tax deduction. A foreign tax credit might allow you to reduce your U.S. income taxes by one dollar for each dollar of foreign taxes paid. A foreign tax deduction, on the other hand, generally reduces taxable income by one dollar for each dollar of foreign tax paid. The deduction allows you to reduce your U.S. income taxes by an amount directly related to your tax bracket.

Harbor Capital and its associates do not provide legal or tax advice.

Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or tax professional regarding any legal or tax issues raised in this material.

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