Income-tax threshold raised for foreigners

[Hypiereon]

Income-tax threshold raised for foreigners
"Foreigners working in China have to pay personal income tax only if their monthly pay is above 4,800 yuan (US$592), up from the previous threshold of 4,000 yuan (US$493), Xinhua reported yesterday.

The revised law on personal income tax became effective as of January 1 this year, but the amount of foreigners' taxable income has not been widely reported. "

By Su Bei (China Daily)
Updated: 2006-02-09 05:30
http://www.chinadaily.com.cn/english...ent_518411.htm

This means the 10% tax on anything over 4,000 RMB on the official Chinese website should now read 20% tax on anything over 4,800 RMB. This is great news for those who have hit that ceiling on 4,000 RMB per month. Make sure you're getting the 4,800 RMB if their reasons for being so reticent in the past have been the tax liability issue.

Since this information is just now coming available, I'm sharing it here first and will be adding updates on the other threads (here and on other websites) later.

[gfell]

Excellent! Thanks for the great info Hypiereon. Looks like the wages for English teachers are slowly but surely heading north.

[Hypiereon]

This should really help everyone find more flex in their contracts and bargaining powers even without mentioning it. While my own contract is worth 5,500 RMB for 12 hours, I'm sure I could have bargained for more with the new tax ceiling. Will have to work all that out next year though.

[gfell]

Am really impressed by the nice package you have carved out for yourself. With your advice posted on this forum, there should be no reason why new teachers to China cannot do the same.

I suppose it all comes down to your own will. If you sit back and take the passenger's seat, then you don't get very far in life.

[REIANDY]

I was wondering if you could tell me about how much tax you are charged on your 5,500. I am signing my contract for 16hrs at 6,000 but when she realized that it was for over 4,000 she wanted to cut the hours and money down. Is it really that much in taxes that I should have to take less and get the overtime pay...which is at the same rate of the regular hours??? It would mean that I would have to work the hours to get the same amount of money BUT if I didn't always have 16hrs a week I would still keep my 6,000 but they would probably always have ATLEAST 10hrs to offer...which is the base of 4,000. (does that make sense???)

[Hypiereon]

I pay nothing on my 5,500 RMB - the schools pays the tax - which is only 140 RMB. Here's how tax is figured for me. 5,500 RMB minus the 4,800 RMB exclusion leaves, 700 RMB to be taxed at 20%. 20% of 700 RMB is 1400 RMB - and that is the tax.

For your situation, 6,000 RMB minus the exclusion leaves 1,200 RMB to be taxed. Take 20% of 1,200 RMB, and that means there is a tax of 240 RMB to be paid. The school should pay this if you have written it into your contract correctly.

Whether or not it is a big deal depends on who has to pay it. If I'm paying it, it's a big deal to me, but if a school - not a person but an institution - is paying it out of their profits (which are huge), then it's not a big deal for them to pay it in my opinion.

As for the rest of your thread, it was a bit confusing to understand. I hope though, that my answer for the first part will clear things up a bit for you. If you still have a question about any of this, feel free to ask again.

[libra]

Do US citizens have to pay US income tax on money earned teaching in China? If so, what do you do about a W2 form?

[Hypiereon]

Short answer: you wouldn't owe Federal taxes, but be sure to check the CAUTION and DISCLAIMER at the end of this article.

Here's the long answer:
Foreigners working abroad could exclude up to $80,000 of their income provided they met two criteria - 1. The country they worked in has a tax on income (even if you don't pay taxes because you didn't hit the 4,800 exclusion limit in China still counts ) 2. The second has to do with establishing residency abroad.

If you spend more than 330 days in the country or establish an official residence in that country, then you meet that requirement as well. However, even if you didn't live at least 330 days in the foreign country or establish residence there, you can still claim a deduction - just not the full $80,000. Your deduction would be pro-rated for the number of days you did spend in China.

Case example: Tommy works September - December and earns 20,000 RMB in those months. That comes to about $2,500 in USD. Under the poverty provisions of income, he wouldn't owe any money in taxes to begin with based on this income alone, but for the sake of example let's say he would still owe taxes anyway.

He did spend 122 days in the country. Now, take the $80,000 decution and spread it over 330 days - that comes to a tax break of $242.42 per day. I doubt very seriously that you'd ever hit that pay per day, but lets go ahead and figure the allowable deduction for the 122 day stay anyway. 122 x 242.42 = $29,575.24 pro-rated deduction. If you have a residence, then you're also allowed to deduct for housing as well.

The irs website says as much, but here's a better article that explains it a whole lot better in laymans terms: http://www.bankrate.com/brm/itax/tip...a.asp?caret=14

Again, unless you're the head of a major multi-national corporation pulling down over $80,000 a year over here - there isn't a chance you'd pay any federal tax.

CAUTION: You'd still owe for S.S. as a self-employed individual. If you have state taxes, then you'd have to check them to see if you would have an exclusion there or not. So, don't think you're ever getting off totally scott free - but the good news is that since you're income is low, so will your S.S. tax burden. At least you won't owe anything to the Fed.

As a person who is self-employed abroad, you should seriously check with a CPA because there are legal ways to turn your housing expenses into a "business expense" and therefore would not even be subject to S.S. taxes because it does not show up as "income."

DISCLAIMER: I am not "tax" savvy. All this information is how I understand it when my accountant talks and from what information I have found on the web. I barely understand it enough to write this answer, so do be sure you talk to a professional - but this should at least give you a direction to go and start asking the right questions.

[libra]

Thanks, Hypiereon, that helps a lot.