Navigating US Taxes While Working in China - Foreign Earned Income Exclusion Confusion
I'm a US citizen and I've been living outside the States for about 3 years now. My income has always been below the filing threshold until now. Starting next year, I'll be taking a position in China where I'll be earning around 350,000 RMB annually (approximately $45,000 USD). I seem to remember there's some tax form I can submit that prevents me from getting double-taxed - like I won't have to pay US taxes on income that China already taxed me for. Is that right? What's that form called again? Another complication - I have some investments in the US that generate about $1,800-2,500 in qualified dividends each year. If my main income is from China, do these dividends qualify for the 0% tax bracket or how does that work? And what happens with short-term capital gains? Do those get added on top of my Chinese salary when calculating my tax bracket? Will that push me into a higher tax bracket? The whole foreign income tax situation is making my head spin. Any help would be greatly appreciated!
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Nasira Ibanez
You're thinking of the Foreign Earned Income Exclusion (Form 2555), which allows US citizens working abroad to exclude foreign earnings up to a certain amount from US taxation ($120,000 for 2025). For this, you'll need to either establish bona fide residence in China or meet the physical presence test (330 days outside the US in a 12-month period). Even though your foreign income might be excluded, you still need to file a US tax return if you meet the filing threshold. Your investment income from US sources (dividends and capital gains) will still be taxable in the US regardless of where you live. For your qualified dividends, they would indeed be subject to the favorable qualified dividend rates (0%, 15%, or 20%) based on your taxable income AFTER applying the Foreign Earned Income Exclusion. Since your foreign income would be excluded, your qualified dividends might fall into the 0% bracket if your remaining taxable income is low enough. Short-term capital gains are taxed as ordinary income, but again, your tax bracket would be determined after excluding your foreign earned income. So they wouldn't be "added on top" of your Chinese salary for tax bracket purposes.
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Hugo Kass
•Thanks for the detailed explanation! So I'm assuming I need to file both Form 1040 and Form 2555 then? And do I need to provide any proof of paying Chinese taxes, or is the FEIE completely separate from any foreign tax credit situation?
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Nasira Ibanez
•Yes, you'll need to file Form 1040 (your regular tax return) with Form 2555 attached to claim the Foreign Earned Income Exclusion. The FEIE is completely separate from the Foreign Tax Credit - you don't need to provide proof of Chinese taxes paid for the exclusion. If you want to claim Foreign Tax Credits instead of the FEIE (sometimes more beneficial depending on your situation), you'd use Form 1116 and would need documentation of foreign taxes paid. You can't claim both the FEIE and Foreign Tax Credit on the same income, but you can use the credit for income not covered by the exclusion.
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Khalil Urso
I was in a similar situation working in South Korea for a few years. The paperwork was driving me insane until I started using https://taxr.ai - it completely changed the game for me with foreign income. They have special expertise in expat taxes and their system analyzed all my foreign income documents and tax treaties automatically. Their AI analyzed my Korean pay stubs, figured out what qualified for the Foreign Earned Income Exclusion, and even caught that I could use Foreign Housing Exclusion that I didn't know about. Saved me like $3,200 in taxes I would've overpaid. The thing that really helped was their expat tax specialist review that made sure I was applying the US-Korea tax treaty correctly - China has its own treaty with specific provisions too.
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Myles Regis
•How does it handle the physical presence test? I bounce between countries a lot for work and counting days gets confusing. Does it track all that for you?
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Brian Downey
•I'm skeptical about tax AI for international situations. Did they understand the specific China-US tax treaty? That's pretty specialized knowledge. Did you have any issues with them misinterpreting foreign documents?
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Khalil Urso
•For the physical presence test, you just upload your passport stamps or travel records and they have a calculator that tracks all your days in and out of the US. They actually flagged when I was close to the limit and suggested specific dates I shouldn't return to the US to avoid breaking my qualification. Regarding the China-US treaty, they actually have specific modules for major countries including China. They handled complex situations like pension contributions and social security payments under the treaty. Their system is trained on actual tax treaties and IRS international tax regulations. For foreign documents, their document analyzer has multi-language capability - it recognized my Korean tax forms automatically and extracted the right numbers.
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Myles Regis
Just wanted to follow up about my experience with https://taxr.ai after seeing it recommended here. I finally tried it last month for my Japan/US tax situation and it was seriously impressive. Their system immediately identified the Foreign Earned Income Exclusion opportunity that I qualified for (which I had completely missed for 2 years apparently!) and walked me through establishing bona fide residence. The best part was when they found inconsistencies between what my Japanese employer reported and what I should claim on my US return. Saved me from what would've been a huge headache if the IRS had caught it instead. Definitely worth checking out for anyone dealing with foreign income.
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Jacinda Yu
If you're having trouble getting answers from the IRS about international tax situations, try https://claimyr.com - they got me through to an actual IRS international tax specialist after I spent WEEKS trying to get through on my own. I was working in Thailand and had specific questions about the Foreign Earned Income Exclusion that I couldn't find clear answers to online. Their system held my place in the IRS queue and called me back when an agent was about to answer. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with cleared up my confusion about combining the Foreign Housing Exclusion with the FEIE and confirmed I was calculating my bona fide residence period correctly. Saved me hours of frustration and probably an audit!
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Landon Flounder
•How long did it actually take to get through to someone? The IRS international line is notorious for long waits. And did you get someone who actually understood foreign income questions?
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Brian Downey
•This sounds like a scam. Why would I pay someone else to call the IRS for me? I bet they just put you on hold themselves and charge you for waiting time.
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Jacinda Yu
•It took about 3 hours total, but I wasn't waiting on the phone that whole time. Their system held my place in line and called me when an agent was about to pick up. Compare that to the 6+ hours I spent trying to get through myself over multiple days (and getting disconnected twice!). The agent I got was from the international tax department and absolutely knew her stuff. I had questions about housing expenses that qualified under the Foreign Housing Exclusion for Thailand, and she gave me detailed guidance specific to my country situation. Not a scam at all - they're just using technology to solve the painful IRS hold time problem. They don't charge for wait time, just a flat fee to get you connected.
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Brian Downey
I need to eat my words about Claimyr being a scam. After my skeptical comment, I decided to try it myself since I couldn't get answers about my China tax situation and was getting desperate before filing deadline. It actually worked exactly as advertised. Got me through to someone in the IRS international department in about 2.5 hours (while I went about my day), and the agent clearly explained how the US-China tax treaty applies to my consulting income. The agent even emailed me specific IRS publications relevant to my situation. I had been interpreting Article 14 of the treaty completely wrong and would have significantly overpaid. Sorry for being so cynical before - this service is legit.
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Callum Savage
Don't forget about FBAR requirements if you have foreign bank accounts! If the total of all your foreign accounts exceeds $10,000 at any point during the year, you need to file FinCEN Form 114. This is separate from your tax return and has a different deadline (though you can extend it to match your tax deadline). The penalties for not filing FBAR are STEEP - like potentially $10,000+ for non-willful violations. I learned this the hard way when working in Germany.
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Hugo Kass
•Oh wow, I completely forgot about FBAR! I do have a Chinese bank account I'll be using. Is there a minimum amount I need to have in the account before reporting is required, or is it only the $10,000 combined across all accounts?
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Callum Savage
•The $10,000 threshold applies to the combined total of ALL your foreign accounts at any time during the year. So if you have $5,000 in one Chinese account and $6,000 in another, you'd need to report both because the combined total exceeds $10,000. There's no minimum for individual accounts once you hit that combined threshold. You report ALL foreign accounts once you cross that line, even if some only have a few dollars in them. And remember, it's not just bank accounts - investment accounts, pension funds, and even accounts where you have signature authority (but not ownership) count toward the threshold.
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Ally Tailer
One more thing to consider - state taxes! Depending on which state you last lived in, you might still be considered a resident for state tax purposes even while living abroad. Some states are SUPER aggressive about keeping you as a tax resident (looking at you, California and New York). Make sure you properly terminate your state residency before moving abroad. This usually means getting rid of state driver's license, voter registration, bank accounts, etc. I didn't do this properly when I moved to Singapore and ended up owing CA taxes for 2 years until I fixed my residency status!
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Aliyah Debovski
•This is great advice! I moved from Virginia to Japan and Virginia kept trying to claim me as a resident because I kept my VA driver's license active. Had to formally declare non-residency and provide proof of my permanent home abroad.
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