Green card holder in China criticizes U.S. worldwide tax on foreign income

(CHINA) The 2025 tax season brings no relief to U.S. lawful permanent residents abroad: Green card holders living in China still face Worldwide Taxation by the Internal Revenue Service and must report global income, even if not a dollar is earned in the United States 🇺🇸. The most practical change this year is the higher Foreign Earned Income Exclusion (FEIE) limit—now $130,000 for 2025—and a fresh IRS notice that updates high‑cost housing limits used in the foreign housing exclusion. What did not change is the core rule: a green card holder remains a U.S. tax resident and must file a U.S. return on worldwide income. For many expats in China, this feels like an unfair extra layer on top of local tax. Critics again point to duplicate filings, complex forms, and the risk of paying tax twice when credits and exclusions do not line up cleanly.

Key 2025 Rules Affecting Green Card Holders in China

The 2025 rules build on long‑standing policy that treats green card holders the same as U.S. citizens for federal income tax. That means a person with a green card is a U.S. tax resident and must file an annual return reporting all income from any country. The IRS framework below is central to how expats in China manage their filings.

Worldwide Taxation

• A green card holder must report worldwide income to the IRS, including income earned in China.
• This includes wages, self‑employment earnings, and passive income such as interest, dividends, and rent.
• The place of payment does not matter; U.S. tax residency drives U.S. filing obligations.

Foreign Earned Income Exclusion (FEIE)

• For tax year 2025, the FEIE limit is $130,000 (up from $126,500 in 2024).
• The FEIE applies only to earned income: wages, salaries, and self‑employment income.
• It does not apply to passive income (dividends, interest, capital gains, rental income).

Tests to Qualify for FEIE

• Physical Presence Test: Be outside the U.S. and physically present in foreign countries for at least 330 full days in any 12‑month period.
• Bona Fide Residence Test: Be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. This is a facts-and-circumstances test (where you live, work, and keep a home).

Foreign Housing Exclusion/Deduction

• Qualifying taxpayers may exclude or deduct certain foreign housing costs in addition to the FEIE.
• For 2025, the base housing amount is $20,800, and the general maximum exclusion is $39,000.
• Higher limits apply for IRS‑listed high‑cost locations (see IRS Notice 2025‑16 for specifics).

Social Security Taxes for the Self‑Employed

• The FEIE does not remove U.S. self‑employment tax.
• Self‑employed individuals generally owe 15.3% (Social Security + Medicare) on net earnings, even when living abroad.

Earned income may be excluded under FEIE if you meet a qualifying test, but passive income is still fully reportable and taxable unless offset by foreign tax credits. Self‑employment tax is generally due regardless of FEIE.

Recent IRS Updates and What They Mean for 2025

The IRS continues to adjust inflation‑indexed amounts and publish housing cost updates. Two items stand out for 2025:

• FEIE Increased to $130,000
  • The FEIE is indexed annually. The increase helps wage earners but does not change that passive income is excluded from FEIE eligibility.
• IRS Notice 2025‑16: Updated High‑Cost Housing Limits
  • Issued on March 5, 2025, Notice 2025‑16 updates the list of foreign locations with high housing costs.
  • If your Chinese city is on the list, your housing exclusion cap may be higher than the general limit.
  • The base housing amount remains $20,800 for 2025.

No major law changed the core U.S. taxation approach for green card holders abroad. The framework still rests on worldwide reporting, the FEIE, the foreign housing exclusion, and the foreign tax credit. The optimal mix differs by individual, so annual planning is essential.

Filing Mechanics, Deadlines, and Required Forms

Green card holders living in China follow the same filing calendar as U.S. residents. Below are the standard 2025 steps and requirements:

1. Determine Tax Residency
   • As a green card holder, you are a U.S. tax resident. Plan to report global income and retain records from all countries where you earn money.
2. Collect Income and Tax Records
   • Gather wage statements, self‑employment records, bank interest, dividend reports, and rental records from China and elsewhere.
   • Keep proof of foreign income tax paid to support a foreign tax credit claim.
3. Evaluate Eligibility for the FEIE
   • Check the Physical Presence Test or the Bona Fide Residence Test.
   • If you qualify, you may exclude up to $130,000 of foreign earned income for 2025.
   • Remember: FEIE excludes only earned income, not passive income.
4. Claim FEIE and Housing Exclusion with Form 2555
   • File Form 2555 with your U.S. tax return to claim the FEIE and any foreign housing exclusion/deduction.
   • Official IRS page: https://www.irs.gov/forms-pubs/about-form-2555
5. Consider the Foreign Tax Credit with Form 1116
   • If you paid tax in China on the same income, you may use Form 1116 to claim a foreign tax credit.
   • Official IRS page: https://www.irs.gov/forms-pubs/about-form-1116
6. Watch the Self‑Employment Tax
   • FEIE does not remove U.S. self‑employment tax; plan cash flow accordingly.
7. Meet the Due Dates
   • Returns are due April 15. U.S. taxpayers living abroad receive an automatic two‑month extension to file.
   • Additional extensions may be requested. Paying expected tax by the normal deadline avoids interest.

For official guidance on FEIE and related rules, see the IRS guide on the Foreign Earned Income Exclusion: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion

How These Rules Land on the Ground in China

Many green card holders in China say the rules feel mismatched to their daily lives. They work, save, and pay taxes locally, yet still file and sometimes pay the IRS. The added forms and record‑keeping are especially onerous for families, frequent movers, or small business owners. Common themes include:

• Questions of fairness
  • Why must a green card holder fully settled in China and taxed locally still file in the U.S.? The phrase “paying twice” is common, even though FEIE and foreign tax credits can reduce U.S. tax.
• Administrative grind
  • Tracking days for the Physical Presence Test, collecting documents, and reconciling different tax years consume time and increase risk of small errors.
• Limits on relief
  • FEIE covers wages but not passive income. Investment income, rental income, and retained business profits can still be taxable in the U.S.
• Self‑employment tax surprise
  • Many are surprised FEIE does not cancel U.S. self‑employment tax, creating an extra cost layer.

These complaints surface annually among expat communities and grow louder each filing season. Analysis by VisaVerge.com notes expats struggle to stay compliant while avoiding double taxation, particularly when income includes both wages and passive sources.

Expert Views and Policy Debate

Stakeholders disagree on how far relief should go:

• Tax professionals
  • Advisers emphasize careful annual planning and reviewing FEIE versus foreign tax credit each year.
  • Many recommend hiring an expat tax specialist because rules for green card holders abroad are complex and stakes are high.
• U.S. government officials
  • Officials defend Worldwide Taxation as a way to prevent offshore tax evasion and keep a single standard for citizens and residents.
  • They point to relief tools—FEIE, housing exclusion, and foreign tax credits—to reduce overlap with foreign taxes.
• Expat advocacy groups
  • These groups call for simpler rules and sometimes for taxing only U.S.‑source income for long‑term residents abroad.
  • They argue current rules impose higher costs and risks on green card holders living overseas.

The debate is ongoing. As of mid‑2025, Congress has not enacted reforms that change core obligations for green card holders abroad. The FEIE increase and updated housing notice are adjustments, not structural reform.

Practical Steps for 2025 Filings from China

To reduce stress and improve compliance, follow a clear process:

1. Confirm tax residency: green card = U.S. tax resident; report worldwide income.
2. Gather records monthly: pay slips, bank and brokerage statements, rental ledgers, and housing receipts.
3. Track travel days for the Physical Presence Test with a simple spreadsheet (departure/arrival dates).
4. Assess FEIE vs. foreign tax credit: the better option can change by year and income mix.
5. Use Form 2555 for FEIE and housing exclusion; use Form 1116 for foreign tax credits.
6. Plan for self‑employment tax if you work for yourself; FEIE does not remove this.
7. File on time: note April 15, the automatic two‑month extension for expats, and any further extensions you request.
8. Consider professional help to avoid missed elections or hard-to-fix errors.

These steps mirror adviser recommendations: early planning, solid records, and care when claiming exclusions and credits.

China‑Specific Points Raised by Expats

Common concerns reported in community forums and events include:

• Duplicate reporting worries
  • Mismatches between Chinese documents and U.S. reporting rules create stress even if no U.S. tax is ultimately due.
• The “lived abroad all year” question
  • Living abroad all year does not automatically remove U.S. filing duties for green card holders. You must file and, if claiming FEIE, meet a qualifying test.
• Housing exclusion details
  • IRS high‑cost limits change annually. Notice 2025‑16 governs 2025; missing an update can mean lost benefits or later corrections.
• Passive income pitfalls
  • Interest, dividends, and rent do not qualify for FEIE. The foreign tax credit may help, but paperwork is significant.
• Long‑term ties to the U.S.
  • A green card holder’s U.S. tax life continues until they formally end that status. Annual reporting remains required until then.

Why This Matters for Families and Small Businesses

The impact is practical and immediate:

• Families juggle school calendars and travel while counting 330 days abroad to qualify for FEIE.
• Year-end bonuses may affect which 12‑month window qualifies under the Physical Presence Test.
• Small business owners face U.S. self‑employment tax even when income tax is covered by FEIE or foreign tax credits.
• Renters and homeowners must track housing costs and city caps (per Notice 2025‑16) to maximize the housing exclusion.

These administrative tasks take time and often fall on weekends or late nights. For many, the burden feels disproportionate given limited U.S. ties.

Government Position and Why the System Persists

Officials cite two pillars for continuing the current approach:

• A single standard for citizens and residents, irrespective of residence location.
• Strong rules to discourage hiding income offshore.

They maintain relief mechanisms (FEIE, housing exclusion, foreign tax credit) but have not moved away from worldwide reporting. Yearly updates focus on amounts and listings, not on eliminating the filing requirement.

Reform Talk and What to Watch

As of August 2025, no major law has passed to ease core obligations for green card holders overseas. Advocacy groups continue to press for change—such as taxing only U.S.‑source income for long‑term residents abroad or simplifying forms and rules. Congress revisits the topic periodically, but proposals have not advanced this year.

Practical watch points:
– Monitor annual FEIE increases.
– Check IRS notices like Notice 2025‑16 for housing list updates.
– Follow congressional proposals if you are concerned about long‑term change.

Managing Expectations for the 2025 Tax Year

The 2025 landscape is best described as “same framework, new numbers.” Key figures and facts:

• FEIE: $130,000 for 2025.
• Base housing amount: $20,800.
• General housing cap: $39,000, with higher limits for certain cities under Notice 2025‑16.
• FEIE still excludes only earned income; passive income remains taxable unless offset by credits.
• FEIE does not remove U.S. self‑employment tax (15.3%).

Until lawmakers change the rules, green card holders must continue careful planning and precise filings.

Official Resources and Forms

• IRS guide to the Foreign Earned Income Exclusion (official resource)
  • https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion
• Form 2555 (to claim the Foreign Earned Income Exclusion and foreign housing exclusion/deduction)
  • https://www.irs.gov/forms-pubs/about-form-2555
• Form 1116 (to claim the Foreign Tax Credit)
  • https://www.irs.gov/forms-pubs/about-form-1116
• IRS Notice 2025‑16 (high‑cost housing locations; check current IRS notices for the latest list)

Bottom Line for Green Card Holders in China

• You are a U.S. tax resident and must report worldwide income each year.
• The Foreign Earned Income Exclusion is $130,000 for 2025.
• FEIE applies to wages and self‑employment income, not passive income.
• The base housing amount is $20,800; the general maximum exclusion is $39,000, with higher limits for certain cities under Notice 2025‑16.
• FEIE does not remove U.S. self‑employment tax of 15.3%.
• Use Form 2555 for FEIE and housing exclusion; use Form 1116 for foreign tax credits.
• Returns are due April 15, with an automatic two‑month extension for expats and possible further extensions upon request.
• No major 2025 law change alters the core duty to file and report worldwide income.

For many families in China, the question remains: “Does that make sense?” The rules tie tax to status rather than location, and the debate over fairness continues. Until policy changes, careful planning and precise filings are the tools green card holders must use year after year.