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Expat Tax Blog

Dec 27

Why only 2% of Chinese pay any income tax

by julie

“Of course not, I’m not an idiot,” says Liu Yongli, a chauffeur in Beijing, when asked whether he has ever paid personal income tax. That may explain why personal income tax accounted for only 8% of total tax revenue in China last year, compared with an average of 24% in the OECD, a group of rich countries.

The finance ministry estimates that 187m people ought to be paying income tax. Yet a former finance official reckons that in 2015 only 28m people—just 2% of the population—did so.

A revamp of the income-tax system has been in the works for several years. A tax-evasion scandal this summer involving Fan Bingbing, China’s most famous actress, who ducked nearly 300m yuan in taxes, may have added urgency to the task. (Ms Fan was eventually fined 884m yuan.)

Fanning the flames

The public interest is enormous. A state-sponsored “consultation exercise” on the reform in July attracted over 130,000 comments which is around 100 times the average for such exercises, which the national parliament is legally required to conduct before approving new laws.

Salaried professionals in big cities have long complained that they bear an unreasonable share of the tax burden. That is because firms are legally required to withhold a portion of salaries in taxes. Employers agree to scam allowing them to shirk on social insurance contributions, which can be as high as 40% of a worker’s salary.

The finance ministry reckons that a worker on a monthly salary of 15,000 yuan is enjoying savings of around 1,000 yuan a month as a result of raising the tax-free threshold.

But the reforms also include rules that aim to make it harder for companies to avoid social-insurance contributions by paying workers under the table. Those who make more than 60,000 yuan a year will be required to file annual tax returns, starting next year.

But China has run a budget deficit in 21 of the past 22 years. Last year the deficit breached the government’s self-imposed cap of 3% of GDP. Public debt stands at around 50% of GDP. Although none of these figures is alarming, especially by the standards of the rich world, the economy’s slowing growth will eventually make the government’s debts harder to control.

Original Story at the Economist.

Dec 25

Preparing For the 2018 Tax Year After Tax Reform

by julie

According to Benjamin Franklin, “nothing can be said to be certain, except death and taxes”. With the passage of the Tax Cuts and Jobs Act at the end of 2017, tax rates were lowered for almost everyone. While this is certainly positive, it also means the what people used to understand about the tax code may no longer be true. The changes are so substantial that the IRS is revising over 400 forms and publications to reflect the changes ahead of the 2018 tax season which starts in early 2019 – nearly double the typical number of annual changes. If there was ever a year to use a tax professional or good tax prep software, this is it.

The wise taxpayer realizes that taxes don’t just happen on April 15th, but are a constant process of planning and adjusting. This means understanding the taxes you are likely to owe, and planning your withholding appropriately. Even if your withholding was correct in the past, the new tax laws may have made that withholding calculation obsolete.

This series of articles will mention the more substantial changes to the tax code, but it is important to research everything thoroughly before completing your taxes.

Whole Story at TFX.

Nov 29

Top U.S. House tax writer floats tax bill on retirement plans, IRS

by julie

A Republican Kevin Brady who will soon step down as chairman of the U.S. House of Representatives tax committee late on Monday released a sweeping, nearly 300-page tax bill that he said would affect Americans’ retirement savings, numerous business tax breaks and redesign the Internal Revenue Service.

As a result of November elections, Brady is expected to be replaced as committee chairman in January by Democratic Representative Richard Neal.

The 297-page text of the bill covers tax breaks for fuel cell cars, energy efficient homes, race horses, mine safety equipment, auto race tracks and many other items, as well as retirement savings plans such as 401(k)s and individual retirement accounts (IRAs).

According to Brady, the bill also “includes some time-sensitive technical corrections” to the 2017 bill that Trump signed into law.

Original Story at Reuters.

Nov 17

Who are the big (tax) winners ahead of the 2018 filing year?

by julie

US Government wins

The majority of individuals filing US tax returns will pay more tax after the Tax Reform. The tax increase will affect US citizens, green card holders, as well as non-resident aliens with income from US sources. However, certain categories of individual taxpayers will see a reduction in tax.

And the winners are…

Very low-income taxpayers come out on top

EXAMPLE

  • Married couple
  • No children
  • Combined income of $43K.

In 2017, the couple would have paid $2,400 tax on this income. In 2018, they will pay zero tax.

Before the reform, a 10% tax was assessed on taxable income from the first dollar. Under the new rules, the 10% bracket was eliminated. The 12% tax bracket starts from taxable income of $19,050. As a result, this couple will pay no federal tax at all. After the standard deduction of $24K, their taxable income will be $19K, which is below the lowest tax bracket.

If they have children they will receive $2K credit per child instead of $1K they would have received before the reform and they are eligible for the Earned Income Credit (EIC) on top of that.

Whole Story at TFX.

Nov 16

Extra, Extra, time to renew your ITIN!

by julie

Is your ITIN set to expire?

9XX-73-NNNN or 9XX-75-NNNN – Does your ITIN look like this? It may be expiring on Dec 31 2018 .

All ITINs issued before 2013 with middle digits of 73, 74, 75, 76, 77, 81, or 82 (Example: (9XX-73-XXXX) are set to expire on December 31, 2018. Additionally, unused ITIN (not used on a federal tax return at least once in the last 3 years) will also expire.

Do not wait to receive a nastygram – if you utilize an ITIN on your returns (for yourself or dependents), it’s time to renew – notify your tax preparer to file Form W-7 for you.

What is an ITIN and do you need one?

If you don’t have an SSN and are not eligible to receive one, you need an ITIN to file a tax return in the US (it is how the IRS identifies you or your spouse/dependent) As noted above, millions of ITINS expire each year and must be renewed with the IRS. Renewal is done by filing form W-7. If you have an SSN, you do not need an ITIN. However, your dependents may require an ITIN.

Note, last year’s tax reform has potential credits available to dependents without a SSN, but with an ITIN.

Whole Story at TFX.