If you paid foreign income taxes—on earnings from overseas employment, for example, or on investments in foreign securities or if an international mutual fund paid taxes on your behalf—you may be in line for this credit. It's designed to prevent you from paying tax twice on the same income.
You actually have a choice of either claiming foreign taxes paid as a credit that will reduce your federal tax bill dollar for dollar or including the amount with the state and local taxes you write off as itemized deductions. Although the credit will almost always produce the bigger savings, restrictions on the credit can sometimes make the deduction the better deal. This is most likely to occur only if the foreign tax rate is higher than your U.S. tax bracket and the ratio of foreign income to U.S. income is low.
Even if you don't think you paid any foreign income taxes, you might deserve this credit if you own shares in a mutual fund with substantial foreign holdings. The fund may have paid taxes on your behalf. The 1099-DIV you received from the fund should indicate if that occurred and we'll ask you about it in the interview.