Paying China or U.S. Taxes in China

[Randy W]

from the Global Times

 

Foreigners facing challenges with the implementation and interpretation of filing and paying income taxes in China look for answers

 

According to regulations, foreigners should file their taxes with the Chinese tax authorities before March 31 of the following year if their annual income has exceeded 120,000 yuan.

 

. . .

 

Russell Brown, managing partner at LehmanBrown, a Beijing-based accounting and taxation advisory firm, told Metropolitan that foreigners who spend more than 90 days (or 183 days for residents of countries that have signed a double taxation treaty with China), but less than five years in China during a calendar year, are subject to individual income tax (IIT) on their China-sourced income. A full year is classified as a year from January 1 to December 31 when an expat does not leave the country for more than 30 full days in one trip, or 90 full days in many trips.

"If an expat has continuously resided in China for more than five years, he or she would be subject to IIT on their worldwide income starting from their sixth year in China. The exception would be if the individual leaves the country for more than 30/90 full days, which would make the sixth year not a full year, and so on for each year of tax residence," said Brown.

He said all foreigners who are taxed residents in China need to declare their income if it is sourced from China, even if they are paid outside of China. If they are employed and paid by a company in China, then this company would deduct the tax on their behalf and pay the taxes due. When an overseas company is paying the employee and no Chinese entity is involved, it is the responsibility of the employee to declare their income and pay the taxes due.

Michael said since policies are a bit complicated, sometimes he makes mistakes on residence time calculation and files incorrectly.

 

 

 

 

 

[Randy W]

Five things to know when filing with the IRS from China as an expat

1) Use a U.S. address so any mail can reach you in a reasonable time frame

2) When using the "80% of LAST year's taxes" option on the underpayment of estimated taxes form, you need to have filed quarterly (or have paid withholding throughout the year). Use (and PAY by Jan 15) the "90% of THIS year's taxes" option instead. NOTE: This option no longer works. If you DO NOT file quarterly, you MAY OWE an "underpayment of estimated taxes" penalty. Use Form 1040-ES Payment Voucher or the online payment portal. Payments are due April 15, June, 15

3) There IS a retired old fart's exemption from the late payment penalty, which TurboTax encouraged me to use for my 2017 return (apparently successfully, since I haven't heard anything about my 2017 taxes).

4) ALWAYS order both the account AND the return transcripts each year, so you know where you stand. You may need to wait 3 or 4 months after filing before they are available.

5) If your income is above the threshold BEFORE the Form 2555 Foreign Earned Income "Exclusion", YOU NEED TO FILE.

NO income is actually EXCLUDED - you report it, and pay taxes on ALL income. Taxes on Foreign Earned Income are calculated using the Foreign Earned Income worksheet in the 1040 instructions.

The word "Exclusion" is a VERY unfortunate misnomer regarding the Foreign Earned Income Exclusion - MANY people believe that they are EXCLUDING their Foreign Earned Income.

From Wikipedia - https://en.wikipedia.org/wiki/Foreign_earned_income_exclusion

Quote

Although called an exclusion for historical reasons, since the 2006 tax year it is better described as a credit equal to the amount of tax that would have been owed on the eligible foreign income, without considering any deductions or exemptions. The effect of this is to limit the advantage of the exclusion to a reduction in tax of no more than the amount that would apply for a lower income taxpayer, even if the taxpayer is in a higher tax bracket.

The minimum filing requirements FOR THE IRS are worth revisiting. They are based on your GROSS INCOME

See Publication 501. https://www.irs.gov/publications/p501#en_US_2017_publink1000270109

Quote

Gross income means all income you receive in the form of money, goods, property, and services that isn't exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it).

INCLUDING any income you "EXCLUDE" with the Form 2555 Foreign Earned Income Exclusion.The Form 2555 Foreign Earned Income Exclusion does NOT "exclude" anything - you REPORT your income AND pay taxes on it, as calculated through the Form 1040 Foreign Earned Income Tax Worksheet.

For 2017, those filing minimums are $10,400 for single taxpayers and $20,800 for married, filing jointly. If you earned this amount or more, even through foreign "excludable" earnings, you ARE required to file by the IRS.

And, as we all know, any Guangzhou Visa Officer can require a tax return for any year whatsoever.

Fees and penalties for late filing, however, are based on the amount of tax actually owed, which CAN be $0 up to the amount covered by the Foreign Earned Income Exclusion.

Edited May 31, 2023 by Randy W (see edit history)

[Randy W]

from China Daily

 

Elderly care expenses to become tax-deductible

China will include expenses of caring for elderly people in the categories of tax-deductible items while setting the minimum threshold for individual income tax at 5,000 yuan ($732) per month, according to the National People's Congress Standing Committee, the nation's top legislature, on Monday.

. . .

In a draft amendment submitted for first reading in June, the minimum threshold for individual income tax was to be raised from 3,500 yuan to 5,000 yuan per month, or 60,000 yuan per year, and the NPC Standing Committee decided to keep that standard on Monday.

Expenses for elderly care were added to the category of special expense deductions in the latest version of the amendment, considering "China's rising elderly population and heavier burden for taking care of aging residents", according to Xu Hui, deputy head of the NPC Constitution and Law Committee.

Other tax-deductible items include children's education, continuing education, treatment for serious diseases and housing loan interest and rent, according to the draft.

 

 

[Randy W]

from the SCMP - China's tax tables

 

Is China’s first tax cut in 7 years too little, too late to boost consumer spending?

China cuts individual income taxes for first time since 2011, but hopes for consumer spending boost questioned

 

 

Edited August 30, 2018 by Randy W (see edit history)

[Randy W]

I got this notice for the first time this year (2023 for 2022 tax year). The notice SAT in my US mailbox for a month before I noticed it - meanwhile, wondering why my return wasn't being processed. No problem, since my "refund" is being applied to my 2023 return.

When you go online to "verify  your return", you login to your IRS account (yes, you pretty much need one). They will simply ask a few questions about the return, including the Control number, your AGI, and your refund amount. Since I was applying the refund to my next year's taxes, they only accepted "$0" as the refund amount.

 

Edited May 31, 2023 by Randy W (see edit history)

[Martin B]

19 hours ago, Randy W said:

I got this notice for the first time this year (2023 for 2022 tax year). The notice SAT in my US mailbox for a month before I noticed it - meanwhile, wondering why my return wasn't being processed. No problem, since my "refund" is being applied to my 2023 return.

When you go online to "verify  your return", you login to your IRS account (yes, you pretty much need one). They will simply ask a few questions about the return, including the Control number, your AGI, and your refund amount. Since I was applying the refund to my next year's taxes, they only accepted "$0" as the refund amount.

 

Randy - just curious, how do you handle US mail? Do you use a scanning/forward service? Have it go to a friend or family member's house? Have you run into any issues not having a "permanent" US address?

[Randy W]

On 6/1/2023 at 8:26 AM, Barfus said:

Randy - just curious, how do you handle US mail? Do you use a scanning/forward service? Have it go to a friend or family member's house? Have you run into any issues not having a "permanent" US address?

I have a forwarding/scanning service in Delaware. That doesn't seem to me to be something you would want to burden a freind or family member with, but of course that's just a personal preference.

Although it DID change once (they closed their office in Valley Cottage, NY), it is as "permanent" as anyone's permanent address. But there have been cases where it was rejected (it is recognized somehow as a mail drop-off, rather than a post office or street address) - my bank insisted on having an actual residence address, in addition to the mailing address. Likewise, my VOIP "cell phone" number, although it WILL accept SMS messages, is also occasionally rejected - such as recently when I tried to install a ChatGPT app on my computer.

I still need to set up my IRS account with ID.me, their new authentication service, but I'll wait until I can close out this tax year to do that. Once I've downloaded the transcripts, THEN I'll worry about next year. The IRS tells me I need to switch my online account to that service "as soon as possible".

Edited June 2, 2023 by Randy W (see edit history)

[Randy W]

Sadly, the IRS just today cut me off from my IRS account. I'll have to finish activating my ID.me account in order to verify that they processed my return.

Edit: That was easier than I thought - I just completed the video call to show my passport and SS card. Apparently, that's all I needed to do.

The video call was through a web site accessed on my cell phone. They require a real cell phone for the 2FA authorization, but, for that, they do allow a Chinese number - it's able to get my authorization codes with no problem (although my cell provider - China Telecom - sometimes squawks about possible SPAM SMS's from foreign callers - no problem).  The ID.me sign-up procedure required a US non-VOIP cell phone, but they now allow the online video call instead.

Connecting back to the states like that is MUCH easier these days - I used to have to wait until around 2AM or so to have an adequate connection even for an audio call.

Edited June 2, 2023 by Randy W (see edit history)

[Randy W]

One thing on my wish list is this YubiKey 2FA device - it generates an authorization code for whatever device it's connected to. Not necessary now, but I expect it will come in handy to use instead of the codes transmitted to your cell phone.

https://www.amazon.com/gp/product/B08DHL1YDL/ref=ox_sc_saved_title_2?smid=A3PIGE6HBK2LA8&psc=1

Yubico - YubiKey 5C NFC - Two Factor Authentication USB and NFC Security Key, Fits USB-C Ports and Works with Supported NFC Mobile Devices - Protect Your Online Accounts with More Than a Password

[Martin B]

21 hours ago, Randy W said:

Sadly, the IRS just today cut me off from my IRS account. I'll have to finish activating my ID.me account in order to verify that they processed my return.

Edit: That was easier than I thought - I just completed the video call to show my passport and SS card. Apparently, that's all I needed to do.

The video call was through a web site accessed on my cell phone. They require a real cell phone for the 2FA authorization, but, for that, they do allow a Chinese number - it's able to get my authorization codes with no problem (although my cell provider - China Telecom - sometimes squawks about possible SPAM SMS's from foreign callers - no problem).  The ID.me sign-up procedure required a US non-VOIP cell phone, but they now allow the online video call instead.

Connecting back to the states like that is MUCH easier these days - I used to have to wait until around 2AM or so to have an adequate connection even for an audio call.

Great information, thanks Randy