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October 16, 2020 at 12:11 pm #87187ExpatInfoDeskKeymaster
Posted by Sean, 1 reply
This is a great site and thanks in advance for your advice. I am trying to determine tax implications if I take up a full-time job in China (I am a US Citizen). Here is the example scenario.
Annual Salary+Bonus (Excluding expenses paid by company for rent/school etc.) – $200K
Taxes paid in China@20% – 40K
US tax calculation (approximate)
200K-108K(FEIE) = 92K
US taxes on the remainder = 92K*33% = 30K (approx)
China taxes already paid on remainder = 92*20% = 18K (approx)
Approx. Net US Tax payable = 30K-18K = 12K
Is this correct that I will have to pay the difference in income tax over 108K to the IRS?
Also, for tax purposes, does IRS consider actual Rent/School expenses paid by employer as income (this will not be considered income by the Chinese government AFAIK). tI would help me figure if this is a good offer or now. Thanks.
Hello! I hope you’re enjoying the expat life in China!
You’re on the right track – you can exclude approx. $100K based on the tax year of your foreign earned income if you qualify as a bona fide resident or were physically present outside the US for 330 full days during a relevant uninterrupted 12-month period.
On the remainder, you can use Foreign Tax Credit paid to China as a $ for $ credit for your US taxes.
Two things to watch out for:
Taxes calculated on the remainder of your income takes your foreign earned income in consideration. So, you can’t just use the normal tax rates on the remaining ~92K, you would need to calculate taxes on your entire income, then you can exclude the portion allocated to your excluded foreign earned income.
The foreign earned income exclusion ONLY applies to foreign earned income! So, if you worked in the US during a business trip, that is not considered foreign income. And if you have investment income as well, that is not considered earned income.
Some more details if you’re interested: https://www.myexpattaxes.com/u-s-source-income-vs-foreign-income
In regards to your last question – generally yes, they are included but it always depends on the situation. For example, if the housing is provided as a convenience for the employer, it might be excludable. Also, up to $5,250 of employer-paid education expenses can be excluded… read more about that here: https://www.irs.gov/newsroom/tax-benefits-for-education-information-center
Good luck and if you have further questions, check out MyExpatTaxes – tax software made for US Expats!
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