If you are a U.S. citizen or resident alien living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States. Your income, filing status, and age generally determine whether you must file a return. Generally, you must file a return if your gross income from worldwide sources is at least the amount shown for your filing status in the Filing Requirements table in Chapter 1 of Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (available at www.irs.gov). The IRS web site has a wealth of information available for the overseas taxpayer. Follow the ‘Individuals’ and ‘International Taxpayers’ links, or search for IRS Publication 54.
U.S. Tax Information
Internal Revenue Service
P.O. Box 920
Bensalem, PA 19020
(215) 516-2000 (not toll-free)
Phone service available from 6:00 am to 11:00 pm (EST) M-F
Chinese Income Taxes
The Individual Income Tax (IIT) in China is a progressive tax just like in the United States. The first 4,000 ($500) of your monthly salary isn’t taxed, but for wages up to 20,000 ($2,500), you are taxed 20 percent (after a 375 /$47 standard deduction), for wages 20,001-40,000 ($2,500-5,000) the tax rate is 25 percent (after a 1,375 /$170 deduction), and so on. The highest tax bracket is income over 100,000 with a marginal tax rate of 45 percent.
Unlike the United States where income taxes are paid once a year, in China they are paid each month. Employers typically handle the tax burden for their employees. They’ll withhold the tax from your salary and pay the State Administration of Taxes on your behalf, so you’ll never have to personally file your taxes.
U.S. Income Taxes
According to the tax treaty between the United States and China, you are entitled to tax credit; generally the amount of tax paid in China can be used as a tax credit when you file your taxes in the United States. So if you owe $5,000 to the IRS this year, but already paid the ITT $1,000, you just have to pay the IRS $4,000. The principle of reciprocity supposedly keeps international tax matters simple.
If you plan to file a tax return in the United States, the best way to reduce U.S. taxes on your Chinese income is to claim the Foreign Earned Income Deduction. You can treat $80,000 of your income as not taxable. To qualify you must earn your income abroad and pay taxes abroad (i.e. to China). Use IRS form 2555 to claim your deduction and submit your Chinese tax documents.