Americans who move to China for a multinational assignment, a family connection, or a business opportunity quickly learn that two tax authorities now have a claim on their income: the State Taxation Administration in China and the IRS back home. US expat taxes in China are not optional, and the two filing systems do not coordinate with each other on their own. China taxes its residents, whether domiciled there or present long enough to qualify, on their income, and the United States taxes its citizens and green card holders on worldwide income no matter where they live. An American living in China typically owes a Chinese Individual Income Tax filing and a US Form 1040 for the same tax year, and the entire planning exercise is about using the Foreign Tax Credit, the Foreign Earned Income Exclusion, and the US-China tax treaty to keep the same income from being taxed twice.
Do US Citizens Living in China Have to File Both Chinese and US Tax Returns?
Yes, in almost every case. China taxes individuals who qualify as tax residents, generally meaning they are domiciled in China or are present in the country for 183 days or more in a calendar year, on their income through the Individual Income Tax administered by the State Taxation Administration. The United States separately taxes its citizens and green card holders on worldwide income no matter where they live, a rule that has nothing to do with Chinese residency and everything to do with US citizenship or immigration status.
That means the two filing obligations run independently of each other. Filing and paying tax in China does not excuse you from filing a US Form 1040, and filing a US return does not excuse you from your Chinese obligations. The mechanisms that keep the same dollar of income from being taxed twice, the Foreign Earned Income Exclusion, the Foreign Tax Credit, and the US-China tax treaty, operate on the US side of that equation, not as a substitute for either filing.
How Does China Tax Residents on Worldwide Income?
China's approach to worldwide income turns on two things: whether you are domiciled in China, and if not, how long you have been a continuous tax resident. Individuals domiciled in China, generally meaning a habitual residence tied to household registration, family, or economic ties, are taxed on worldwide income from the start. Someone without Chinese domicile becomes a tax resident once present in China for 183 days or more in a calendar year, but that alone does not immediately expose their non-Chinese income to Chinese tax.
That is where China's well-known six-year rule comes in. A non-domiciled foreigner who is a Chinese tax resident generally does not have foreign-source income taxed by China until they have been a continuous tax resident for six straight years without a single trip outside China lasting more than 30 days in any of those years, and a qualifying absence resets the clock. This is a significant planning point for Americans on a multi-year China assignment, but the exact mechanics, including what counts as a qualifying trip, have been refined by Chinese tax authorities before and should be confirmed for the current year rather than assumed from older guidance. Once that threshold is reached without a break, worldwide income becomes taxable in China going forward.
Should You Claim the FEIE or the Foreign Tax Credit on China Income?
For most Americans working for a Chinese employer and paid China-source income, the Foreign Tax Credit on Form 1116 tends to be the stronger tool, because China's Individual Income Tax applies progressive rates that are often higher than the comparable US federal rate at typical expat income levels. When that is true, the credit can eliminate US tax on the China-source income entirely and still leave unused credit on the table.
The calculus can flip for someone benefiting from the six-year rule described above. If your foreign-source income, meaning income that is not China-source and not paid by a Chinese entity, is not currently taxed by China at all, there is no Chinese tax to credit against your US liability on that income. In that scenario the Foreign Earned Income Exclusion on Form 2555, which excludes foreign earned income up to an annually indexed maximum, for example $130,000 for 2025, from US taxable income under IRC §911, can do real work where the Foreign Tax Credit has nothing to offset. The FEIE has real costs regardless: it does nothing for self-employment tax, claiming it can disqualify the refundable Additional Child Tax Credit for a family with kids, and once revoked you generally cannot re-elect it for five years without IRS consent. The Foreign Tax Credit, by contrast, is computed by category under IRC §§901 and 904, and unused credit carries back one year and forward ten years on Schedule B of Form 1116. Our FEIE versus Foreign Tax Credit comparison walks through the decision in more detail, and the two elections can be combined across different income types in the same year.
What Does the US-China Tax Treaty Do for Double Taxation?
The United States and China signed an income tax treaty in 1984, and it has been in force since 1987. Like nearly every US treaty, it contains a standard saving clause that lets the United States tax its own citizens and green card holders largely as if the treaty did not exist, so the domestic Foreign Tax Credit and Foreign Earned Income Exclusion mechanisms described above do most of the actual work of avoiding double taxation for an American living in China.
The treaty is better known on the other side of the relationship, since its student and trainee article is commonly relied on by Chinese nationals studying or training in the United States. For a US person living in China, the treaty's day-to-day relevance is narrower: tie-breaker rules for dual residency, provisions touching certain categories of income, and other specific articles that have to be read in their actual text before you rely on them.
Does the US-China Totalization Agreement Cover Social Security?
No. The United States and China do not have a totalization agreement, unlike many other countries where Americans commonly work abroad. Without one, there is no mechanism to assign a worker's social security coverage to a single country, and no certificate of coverage process to fall back on.
That gap matters most for a self-employed American in China. Without an agreement, self-employment income can be subject to full US self-employment tax under domestic law with no coordination against China's own social insurance obligations, and China maintains its own separate social insurance system covering pension, medical, and other benefits. An employee paid through a Chinese employer faces a similar lack of coordination between the two systems. Our guide to totalization agreements and self-employment tax abroad explains how the certificate process works in countries that do have an agreement, and why China is different.
How Are Chinese Pensions and Retirement Accounts Taxed by the US?
Not automatically. China's retirement system centers on the mandatory social insurance individual pension account and has more recently added a voluntary personal pension scheme, along with employer-sponsored supplementary plans at some employers. Being tax-favored under Chinese law does not, by itself, make any of these tax-deferred for US purposes.
The general US rule, under IRC §§401(a) and 402(b), is that income accruing inside a foreign retirement plan is taxed currently to a US person unless a specific treaty provision defers it. Whether the 1984 US-China treaty provides that deferral, and for which type of Chinese plan, is fact-specific and has to be analyzed against the actual treaty text rather than assumed. Our foreign pension US tax treatment guide walks through the four questions that determine the answer for any foreign plan: whether growth is taxed as it accrues, whether a treaty defers it, what has to be reported, and how distributions are taxed.
Are Chinese Investment Funds Taxed as PFICs?
Usually, yes, and this is one of the more expensive surprises for Americans investing through a Chinese brokerage or bank. A Chinese mutual fund, wealth management product, or ETF domiciled in mainland China, Hong Kong, or elsewhere outside the United States typically meets the definition of a passive foreign investment company under IRC Section 1297, with Sections 1291 and 1298 governing the tax treatment. That classification is a matter of US tax law and does not turn on how the fund is taxed or regulated inside China.
Once a fund is a PFIC, the default US tax treatment is punitive: absent a timely election, gains and certain distributions are spread over your holding period, taxed at the highest rate in effect for each year, and hit with an interest charge on top. Each PFIC generally requires its own Form 8621 filing, even in a year where no tax is actually due. This is one of the clearest reasons Americans in China are usually steered toward US-domiciled brokerage accounts and US-based index funds rather than a local wealth management product or fund through a Chinese bank.
What Else Do You Have to Report to the IRS?
Beyond the income tax return itself, Chinese financial accounts and investments carry their own separate information-reporting obligations that apply whether or not any US tax is owed. These filings are enforced on their own terms, and the penalties for missing them are typically far larger than any tax that would have been due.
The China Reporting Stack
Reference- FBAR (FinCEN Form 114). Required when the combined balance of your Chinese bank, brokerage, and social insurance individual accounts exceeds $10,000 at any point during the year. See our FBAR filing guide.
- Form 8938 (FATCA, IRC §6038D). A separate filing threshold, higher for Americans living abroad, that can require you to list the same Chinese accounts directly on your federal tax return. See our Form 8938 guide.
- Form 8621 (PFIC). Generally required for each Chinese fund or wealth management product that qualifies as a passive foreign investment company. See our PFIC and Form 8621 guide.
Whether you even count as a US tax resident in the first place, if your situation is more complicated than straightforward citizenship, such as a long visit before a move to China became permanent, is a separate question governed by the substantial presence test.
Bottom Line
Living in China does not simplify your US tax picture, it adds a second filing system on top of it, and the absence of a totalization agreement makes the social security side harder than it is for Americans in many other countries. The Foreign Tax Credit generally does the heavy lifting on China-source employment income given the progressive Individual Income Tax, the six-year rule can change that calculus for foreign-source income during the early years of an assignment, and the treaty's narrower provisions have to be applied deliberately rather than assumed. Pensions, Chinese investment funds, and foreign accounts each carry their own reporting rules on top of the income tax analysis, and getting any one wrong tends to cost more in penalties than the underlying tax ever would have.
Have questions about US expat taxes in China? Contact TS CPA for a free consultation. We respond within the same day.
Official IRS and Government Sources
- IRS, Foreign Earned Income Exclusion
- IRS, Foreign Tax Credit
- IRS, US Citizens and Resident Aliens Abroad
- IRS, United States Income Tax Treaties A to Z
- Social Security Administration, Totalization Agreements
- FinCEN, Report of Foreign Bank and Financial Accounts (FBAR)
- IRS, About Form 8621
- IRC Section 911, Citizens or Residents Living Abroad