I paid tax in China. Do I have to pay U.S. tax on the same income?

Generally not in full. U.S. citizens and green card holders can credit Chinese income tax against U.S. tax on Form 1116, up to the U.S. tax on that income, or exclude wages earned in China on Form 2555. Either way, you still file a U.S. return.

What is the foreign earned income exclusion for 2026?

Up to $132,900 under Rev. Proc. 2025-32. The housing base amount is $21,264 and the general cap is $39,870; Notice 2026-25 raises the full-year cap to $69,000 in Beijing, $57,001 in Shanghai and $114,300 in Hong Kong.

Can I use the foreign tax credit and the exclusion together?

On different income, yes; on the same income, no. Foreign tax on excluded wages isn't creditable, and partial exclusions remove a proportional share. Claiming the credit after electing the exclusion revokes it, and re-electing within 5 years requires IRS approval.

How does the 330-day physical presence test work?

You must be physically present in a foreign country for 330 full days during any 12 consecutive months; the days need not be consecutive, and the test looks only at time spent abroad, not your purpose. If you spend more time in the U.S., the bona fide residence test may work instead.

Does North Carolina give a credit for tax paid to China?

Yes, for North Carolina residents. Under G.S. 105-153.9 and Form D-400TC, Part 1, you can claim a credit for tax paid to another country on income sourced there, limited to the lesser of the North Carolina tax on that income or the foreign tax paid. Attach the foreign return and proof of payment.

Paid Tax in China? Form 1116 vs Form 2555 (2026)

The short answer

If you are a U.S. citizen or green card holder and paid individual income tax in China, the U.S. generally does not make you pay the full tax twice. You can claim a foreign tax credit on Form 1116, or, for wages earned working in China, exclude them on Form 2555: up to $132,900 for 2026, plus a housing exclusion. You cannot use both on the same income, and unused credits carry back 1 year and forward 10. North Carolina residents can also claim a state credit on Form D-400TC, Part 1, for income sourced in and taxed by another country.

Who this applies to

U.S. citizens and green card holders posted to China or working there, who pay Chinese tax on salary and still file a U.S. return on worldwide income.

U.S.-based families with rent, interest or dividends from China that were taxed there.

Retirees in China: pensions and Social Security are not earned income, so the exclusion does not apply; see our retiring in China guide.

Founders and consultants who split time between the two countries, where day counts decide the 330-day test.

North Carolina residents, who often overlook the state-level credit.

Option 1: the foreign tax credit (Form 1116)

Chinese income tax can reduce U.S. tax dollar for dollar, up to the U.S. tax on that foreign-source income.

Which taxes count: foreign income taxes and taxes in lieu of income taxes. China's individual income tax qualifies; value-added tax, deed tax and property transaction fees do not.

The limit: credit is capped at U.S. tax × (foreign-source taxable income ÷ total taxable income), computed separately by category. Wages are generally general category; interest and dividends are usually passive category.

Unused credit: foreign tax you can't use because of the limit carries back 1 year and then forward 10 years.

Skipping Form 1116: if your only foreign income is passive, your foreign taxes are $300 or less ($600 joint), and everything is reported on a payee statement such as a 1099, you can claim the credit without Form 1116, but you can't carry any excess from that year.

A long window: you generally have 10 years from the original due date to claim the credit or switch from a deduction to a credit.

Option 2: the foreign earned income exclusion (Form 2555)

Wages and self-employment income for work done abroad can be excluded from U.S. taxable income if you qualify.

2026 amounts: the exclusion is up to $132,900 (Rev. Proc. 2025-32). The housing base amount is $21,264 and the general housing cap is $39,870. IRS Notice 2026-25 raises the cap in high-cost cities; for a full year it is $69,000 in Beijing, $57,001 in Shanghai and $114,300 in Hong Kong.

Qualifying: your tax home must be in a foreign country, and you must meet one of two tests.

Physical presence test: present in a foreign country for 330 full days during any 12 consecutive months. The days need not be consecutive.

Bona fide residence test: a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.

Earned income only: interest, dividends, rent, capital gains and pensions can't be excluded, and the exclusion does not reduce self-employment tax.

Higher rates on the rest: remaining income is taxed at the rates that would apply if the excluded income were included, so excluding income doesn't drop you to the lowest brackets.

Why you can't double-dip

Once income is excluded, the foreign tax on that income can't also be credited.

Proportional disallowance: if all your wages are excluded, none of the Chinese tax on them is creditable. If part is excluded, the matching share of the foreign tax is removed and only the rest can be credited.

Switching: claiming the foreign tax credit in a later year counts as revoking the exclusion, and re-electing the exclusion within 5 years requires IRS approval.

Choosing: when Chinese tax is higher than U.S. tax, the credit often brings U.S. tax to zero and builds carryovers. In a lower-tax place such as Hong Kong, the exclusion may come out ahead. Run both.

The U.S.–China treaty and North Carolina

The 1984 U.S.–China treaty requires the U.S. to credit Chinese income tax under U.S. law, but its saving clause lets the U.S. keep taxing its citizens.

Article 22: the U.S. allows its residents and citizens a credit for income tax paid to China, in accordance with U.S. law. Income that China may tax under the treaty is deemed to arise in China, which helps with the credit limit.

Saving clause: paragraph 2 of the 1984 Protocol says the U.S. may tax its citizens, and generally its residents, with listed exceptions. Citizens and green card holders can't use the treaty alone to escape U.S. tax.

North Carolina: G.S. 105-153.9 and Form D-400TC, Part 1 let North Carolina residents claim a credit for tax paid to another state or country on income that country taxed because it came from sources there. The credit is the lesser of the North Carolina tax on that income or the net foreign tax paid, and you attach the foreign return and proof of payment. Nonresidents can't claim it, and taxes paid to cities, counties or other political subdivisions don't count.

Residency: someone who moved to China long-term may no longer be a North Carolina resident; part-year rules apply.

A simple example

Simplified, with round numbers. The U.S. tax figure is assumed, and Social Security taxes and state tax are ignored.

Mr. Wang, a U.S. citizen, works in Shanghai all of 2026. His salary is the equivalent of $150,000, he pays $30,000 of Chinese individual income tax, and his rent is $50,000 a year. Assume U.S. tax on the salary would be $25,000.

Option 1, the credit: the credit is capped at $25,000, so U.S. tax is zero, and the extra $5,000 carries back 1 year and forward 10.

Option 2, the exclusion: he excludes $132,900, and his housing exclusion is $50,000 − $21,264 = $28,736 (under Shanghai's $57,001 cap). Together they exceed $150,000, so all his wages are excluded and U.S. tax is again zero, but the Chinese tax can't be credited and he has no carryover.

If Mr. Wang also has interest, dividends or other income, the two options diverge and both should be calculated.

Common mistakes

"I paid tax in China, so I don't need to file in the U.S." Citizens and green card holders still file on worldwide income; the credit or exclusion is claimed on the U.S. return.

"I excluded my wages but can use the Chinese tax against other income." Tax on excluded income isn't creditable.

"The exclusion covers my rent and pension." It covers earned income only.

"A few trips home don't matter." The physical presence test needs 330 full days abroad in 12 months; a few extra weeks in the U.S. can break it.

"North Carolina gives no credit for foreign taxes." North Carolina residents can claim one for income sourced in and taxed by another country, with the foreign return and proof of payment attached.

What to do and when

Now: gather Chinese tax payment records, payslips, entry and exit records and housing receipts.

By December 31, 2026: count your full days abroad in 2026 for the 330-day test, and model both the credit and the exclusion.

April 15, 2027: 2026 Form 1040 with Form 1116 or Form 2555 is due. If you live outside the U.S. and qualify, you get an automatic 2-month extension to June 15 (interest still accrues), and you can request an extension to October 15.

Missed credits in past years: the 10-year window for foreign tax credit claims may let you amend earlier returns.

How YCL can help

For U.S. citizens and green card holders working, retired or earning income in China, we compare Form 1116 and Form 2555, compute the credit limit and carryovers, and claim the North Carolina D-400TC credit.

We also check whether your Chinese bank accounts and investments require the FBAR or Form 8938. See Foreign income and tax credits. If you are retiring in China, see our retiring in China guide.

YCL Accounting & Consulting is a multi-state CPA firm serving clients across the U.S. in English and Chinese, led by co-founder Gloria (Chenchen) Liu, CPA. You can start with a free 15-minute consultation.