Taxes [For Expats!]

An-D

So, its getting to that time of year when Americans have to do their taxes. My situation is a little difficult, because I'm living in China. I'm assuming I need to pay taxes on the income I'm making over here.

The main problem that I'm facing is that I don't really have any official-looking documents that show that I was paid. Every month, I go to the school's main office and they give me my salary in straight cash. Inside the bulging envelope they give me is a "receipt" that says I was paid 5000 and than it has a bunch of hand-written (sometimes in Chinese, sometimes in English) information saying that: "This much was deducted to pay your telephone/internet bill and this much was deducted for taxes (Chinese taxes)."

I use to make 5000rmb/month (~$760/month) but in March I was given a raise (6800rmb/month = ~$1030/month). One of my friend's (tax/finance major) said that he thinks my income is low enough that I may not need to declare it at all.

My mom is doing me a big favor and taking care of my taxes this year, but she really doesn't know what to do with my Chinese income. Will the IRS accept the weirdly casual salary receipts as proof? How does this work exactly?

CroakerBC

You quite probably want a copy of Form 2555 EZ.

This covers the 'Foreign Earned Income Exclusion'

Essentially, if you are reisdent in a foreign country, and make under X (where x is currently $91,500 and no that is not a typo), you fill in your 1040 as normal, and file the 2555, excluding all income, leaving your taxable after exclusions at 0. You therefore pay no tax on this amount.

You DO need to declare this amount (hence the form), and will possibly get kicked in the arse down the line if you don't.

See http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

FWIW, my wife is a resident in a foreign country (UK) and has to declare ALL income on her 1040, even though it's covered by the exclusion on the 2555. Save yourself some hassle later, and declare it - since your net taxable is 0, it's just paperwork.

An-D

Wow, that was a super helpful response! Thank you!

descolada

You probably need to submit the foreign equivalent of the W-2 with your 1040 long form as well (I believe you must use the 1040 long if you are claiming foreign earned income exclusion)

Now, assuming you can get that Chinese W-2 equivalent, it'll probably be written in Chinese. No prob- you just find the figure that matches your gross income for the past year, write "(Gross income)" next to it and bam, mail it with your 1040 long. Send originals and keep photocopies for your records.

If you can't get a comprehensive statement of wages for the past fiscal year, I guess you'll have no choice but to mail all your past pay stubs. Again, just write "gross income" in parenthesis next to the relevant figure and you'll be covered.

Also, the current exclusion is pretty high, BUT it is also based off how long many days you were in that foreign country. You'll see when you look at the form. Also, to claim China as a tax home, you'll need to have been working there for... 330 days or longer in the past fiscal year. If you don't qualify, you'll need to file for an extension to qualify. This is... form 4868 I believe, file it by June 15 (you get an automatic 2 month extension since you're filing from overseas)

An-D

I'm going back to America (probably) in August/September, so I'll only have been here like....10 months. Give or take. And only 9 months of that is paid.

I'll talk to my boss about getting a comprehensive paystub thingie. But like I said, I get paid in straight cash with basically a handwritten receipt. I wonder if they deal with this stuff very often. I'll see her in a few days.

descolada

Ten months to today? If so then since... May last year? You should qualify for FEIE then, and you shouldn't even need to file an extension. You'll hit 330 days physically present in China by April of this year, and you don't have to file until June.

descolada

Ah, a warning: If you cannot find a 12 month period (starting on any date) in which you were present in China at least 330 days, you can't claim the exclusion. So if you traveled a lot, you might be in trouble.

finral

If they are paying you in cash, considering that it's China, it's quite possible that you aren't being officially paid in any sense, making at kind of under the table situation. Most official places there, in my experience, put your money strait into a bank account.

CroakerBC

Descolada's advice is dead on. I'd forgotten about the 330 day residence period, but they're quite right.
I'm not sure whether you'll need whatever the chinese equivalent is of the W2; we use our equivalent for reference in the UK, but it doesn't get sent to the IRS, and that's been fine. However, this may differ in another country. I don't have the form in front of me, so couldn't swear to it though.

Depending on whether you're decanting your pay into a US or Chinese account, you may also need the TDF 90-22.1 (the 'FBAR', PDF at the bottom of this page: http://www.irs.gov/businesses/small/article/0,,id=148849,00.html). This is for declaring all your foreign bank accounts. Again, it's informational, and doesn't affect your filing unless you're not covered by the FEIE.

ahava

I was just looking into this seeing as I just moved to New Zealand and i'm hoping to get a job soon, and I wanted to be prepared for next year.

If I remember correctly there is a form to fill out (like that one up there) and anything under $70k US was considered exempt, including any money used to pay foreign taxes. But it all still had to be declared.

On the other hand, New Zealand has a 4 year exemption on any foreign income I make (like from investments, inheritance, etc) back in the states. But after that 4 years is up, I have to pay taxes on both sets of income.

It's a bit daunting, this whole paying taxes in 2 countries.

An-D

lonelyahava wrote: »

It's a bit daunting, this whole paying taxes in 2 countries.

Truth. Just as I was getting use to paying Uncle Mao, Uncle Sam comes along for his cut.

And it'll be 11 months when I leave. I got here in September and plan to get back to the States in August.

And I don't trust Chinese banks (mason jars ftw), so.....yeah. I kind of just keep the cash and go off of that.

adytum

If you're not eligible for the income exclusion, I think you'd be eligible for the foreign tax credit, which reduces your American income tax liability by the amount of taxes you paid to a foreign entity.

I'm not too familiar with overseas income, though.