At a glance
- Chinese tax paid does not automatically cover the U.S. bill. Income source, category and foreign tax credit limits matter.
- Work performed in the United States for a Chinese employer can produce U.S.-source wages. State tax, self-employment tax and insurance subsidy reconciliation require separate checks.
- Start the first return with residency dates, family circumstances, gross income, work locations and foreign asset records.
“China’s top individual income tax rate is 45%. The top U.S. federal rate is 37%. If my income has already been taxed in China, shouldn’t that cover my U.S. tax?”
Many new green card holders approach their first U.S. return with that expectation. A federal and state balance due can make them wonder whether their Chinese taxes were included at all.
Understanding the result means separating three things: the income tax calculated in each country, the foreign tax credit the United States allows, and the amounts that remain outside that credit.
How do U.S. and Chinese income tax rates compare?
China applies progressive rates of 3% to 45% to a resident individual’s comprehensive income. U.S. federal ordinary income tax rates range from 10% to 37%. Both systems tax income in layers; the highest applicable rate does not apply to every dollar earned.
Consider a simplified comparison at the same salary level.
Assume annual wages of $120,000, equivalent to RMB840,000 at an illustrative exchange rate of RMB7 per dollar. Calculate each country’s tax separately under its full-year resident rules. For China, allow only the RMB60,000 basic annual deduction. For the United States, use married filing separately for 2026 and assume eligibility for the $16,100 standard deduction. Exclude other deductions, credits, state taxes and social insurance taxes.
| Item | China individual income tax | U.S. federal income tax |
|---|---|---|
| Gross annual wages | RMB840,000 | $120,000 |
| Deduction used in this example | RMB60,000 | $16,100 |
| Taxable income | RMB780,000 | $103,900 |
| Marginal rate on the last portion of income | 35% | 22% |
| Calculated income tax | RMB187,080, approximately $26,726 | $17,570 |
| Income tax as a percentage of gross wages | Approximately 22.3% | Approximately 14.6% |
Calculations use China’s Individual Income Tax Law and rate schedule and the IRS’s 2026 rates and deductions. Actual results depend on deductions, family circumstances and income types. This is not a first-year dual-status return calculation.
Chinese income tax is higher in this example. When the related Chinese tax qualifies for a sufficient foreign tax credit, the U.S. federal income tax attributable to that foreign income may be reduced to zero.
An actual return still requires several further checks.
Why can U.S. tax remain after Chinese tax has been paid?
The foreign tax credit has limits.
The credit generally offsets U.S. federal income tax attributable to foreign-source income, with separate calculations for different income categories. Chinese taxes do not become a general-purpose balance that can pay every item on a U.S. return. Eligible unused credits may qualify for carryover treatment. IRS: Foreign tax credit for individuals
Income classification, source, timing and the final foreign tax liability all matter. Chinese withholding should also be reconciled with the annual settlement and any refund.
A Chinese employer does not necessarily mean foreign-source wages.
For wages, the general rule looks at where the work was physically performed. The employer’s location, payment currency and receiving bank account do not determine the source.
Someone who moves to the United States and continues working remotely for a Chinese employer will generally have U.S.-source wages for the services performed in the United States. Work performed in both countries may require an allocation.
That changes the foreign tax credit calculation. Treaty provisions and relief available in the other country may also need review; Chinese withholding alone does not establish that the entire amount is creditable in the United States. IRS: Source of personal service income
State income tax is a separate calculation.
California taxes residents on worldwide income during their period of residency. It does not allow a foreign tax credit or the federal foreign earned income exclusion.
Chinese tax may therefore offset the relevant federal income tax while California tax remains payable. California residency depends on the person’s circumstances, including the purpose of the stay, home and personal connections. FTB: Guidelines for determining resident status
Other items can increase the balance due.
Consulting, design or other activities that qualify as self-employment may generate separate Social Security and Medicare taxes. Paying Chinese income tax does not automatically eliminate U.S. self-employment tax. The actual working relationship determines whether the activity is employment or self-employment. IRS: Self-employment tax for businesses abroad
Advance Marketplace health insurance subsidies must also be reconciled against actual household income and eligibility. Repaying excess subsidies can increase the balance due. IRS: Premium Tax Credit questions and answers
A credit can be included and a substantial balance can still remain
Take a separate, purely illustrative example:
- Chinese income tax paid: $16,000.
- U.S. federal income tax before the foreign tax credit: $12,000.
- Credit available for the year after applying the relevant rules: $8,000.
The remaining federal income tax is:
$12,000 − $8,000 = $4,000.
If separately calculated California tax is $3,000, the combined amount is $7,000 before any U.S. withholding, estimated payments or other adjustments. This example excludes self-employment tax, subsidy repayments and penalties.
Paying more tax to China than the initial U.S. federal calculation does not, by itself, eliminate the U.S. liability. The allowable credit depends on the applicable limitation. IRS: How to figure the foreign tax credit
Payment timing also affects how the bill feels. Chinese tax may already have been deducted from each payment, while the remaining U.S. tax has had no withholding throughout the year. It then appears as one large payment at filing. Compare annual tax liability, payments already made and the final balance separately.
What should new green card holders prepare for their first return?
1. Establish the residency timeline.
Keep immigration documents, the first entry date as a permanent resident and records of earlier U.S. visits. Prior U.S. presence can sometimes establish tax residency before the green card entry date. IRS: Residency starting and ending dates
U.S. tax residents generally report worldwide income. Leaving wages in a Chinese bank account does not remove the reporting obligation. IRS: U.S. residents
2. Determine first-year treatment and filing status.
The arrival year may be a dual-status year. Dual-status taxpayers generally cannot claim the standard deduction, so the full-year comparison above should not be used to predict their tax.
A spouse remaining in China does not automatically make the taxpayer single. Any available full-year residency election, joint filing option and resulting income inclusion should be considered together. IRS: Taxation of dual-status individuals
3. Gather gross income, foreign tax and work-location records.
Collect wages, bonuses and service-fee details showing gross amounts, receipt dates and tax withheld. Include Chinese tax filings, annual settlements and refunds.
For work performed across borders, retain a work-location calendar. Travel days and working days are not necessarily the same. Bank deposits showing only net payments may be insufficient to calculate income and credits accurately.
4. Organize foreign accounts and historical asset costs.
Account records should identify the owner, account number, annual maximum value, year-end value and transactions. FBAR or Form 8938 reporting can apply even when no income tax is due. Foreign funds also require a review of PFIC and Form 8621 rules. IRS: Comparison of Form 8938 and FBAR requirements, Form 8621 instructions
Keep original purchase, improvement and sale records for property and investments. Purchased assets generally start with a cost basis; their market value on arrival should not simply be substituted as a new tax basis. IRS: Basis of assets
5. Include health coverage and U.S. payment records.
Provide coverage months, Form 1095-A and information about advance insurance subsidies. Update Marketplace information when income or family circumstances change.
Also provide estimated-tax and extension-payment confirmations. These help distinguish the year’s total tax from the amount still unpaid.
A brief reminder about estimated payments
If U.S. tax is expected to remain after available foreign tax credits, and U.S. withholding is insufficient, review federal and state estimated payments during the year. Paying everything when the return is filed may still leave an underpayment penalty. Filing a U.S. return for the first time does not automatically provide an exemption. IRS: Estimated taxes
For payment percentages, deadlines and eligibility conditions, see our separate guide: How much estimated tax should you pay to meet a safe harbor?
For a first U.S. return, start with your arrival dates, family circumstances, income and foreign accounts. Foundation Finance & Tax considers these records together, explains the applicable filings and identifies what can be prepared in advance. The service scope and fee are confirmed in writing before work begins. Ask about your first U.S. tax return.