International students need to pay tax in the US?

China individual income tax reform effective January 1, 2019 and possible effect on U.S. based employees, especially students or recent graduates, who spend a significant part of their time in mainland China.

This is a summary of information provided in an EY Tax insights article that can be found via the following link: https://taxinsights.ey.com/archive/archive-news/china-individual-income-tax-reform-effective-1-january-2019.aspx

The EY article is mainly focused on the impact the new law might have on foreigners and Hong Kong, Macau and Taiwan residents who spend a great deal of time working in mainland China but there is some potential impact on Chinese students in the U.S. who plan to work in the U.S. after graduation and recent graduates now working in the U.S. It might also have some impact on non-Chinese students or graduates whose employment requires them to spend a substantial amount of time in China.

For non-Chinese the primary concern is the magic number of 183 (just over 1/2 a year) days since if you spend that many days, or more, in China during a calendar year your income will be subject to Chinese individual income tax. There is some possibility that this might apply to your worldwide income of all types not just your wages although this will depend on how the regulations for the new law are written. If you keep track of your time in China and are careful not to reach the 183 day mark in any year there should not be a concern. That assumes that during your time in China you do not become 'domiciled' so be careful to only go there on a business visa and stay in hotels or other places where you cannot be considered a resident. If you rent a home or apartment you might have a problem even if it is only for a month or two. If you have any doubt about whether what you do in China might result in being considered 'domiciled' then see a qualified tax consultant before doing anything.

For those with Chinese citizenship there might be one added complication. You presumably have family in the mainland and if you lived at home at some time during the year, before, after or possibly during your overseas based employment then perhaps this could result in your being considered domiciled for that period and thus a China tax resident with your years income being taxed in China. This is a worst case scenario based on my reading of the information in the EY article and once regulations are published for the new law this may not apply. However, better safe than sorry so be careful to check with a qualified tax consultant is you have any concern about this.

Should circumstances dictate that you do end up being a China tax resident for a year there are a few steps you might take to minimize the impact. If you lived at home in China before accepting employment in the U.S. during the same year and there is a risk that you might be considered a China tax resident for that year then you might negotiate a small wage for the balance of that year, along with perhaps a housing allowance, and a substantial wage increase for the following year. You might even ask for a 'bonus' to be paid for the successful completion of one year's employment with that bonus to be paid and taxed in the next year and thus not subject to Chinese income tax.

David Welch