Is there a way my company in the US and I, can avoid paying SS/medicare tax in the US. I work in China full-time, but my salary is paid through the US office. I still pay my Chinese taxes.

They don't want to change to paying me all my money over here because we are a rep office and they have to pay 10% on all expenses.

Any solutions would be greatly appreciated! If you prefer, you can also PM me.

Speak to a tax attorney based in the US, since that is where the money originates. My salary is also paid from the US office but I opted to continue payment on SS and medicare due to credit accumulation.

k, thanks!

A U.S. citizen employed by an "American employer" is stuck paying U.S. social security. The only way out is to be employed (outside the U.S.) by a non-American employer. You might consider establishing an offshore personal services company in any low or no-tax jurisdiction.

The offshore company contracts with US company to provide services to it in Asia and invoices the US company for those services, and the offshore company employs you and pays you a salary. Then you are receiving wages from a non-American employer and U.S. social security does not apply.

Of course, you will no longer be an employee of the US company - this may mean loss of certain benefits, so consider all aspects carefully. You should work exclusively for the offshore company so as not to appear like a self-employed consulting with multiple customers.

If you are the owner of this offshore company, you will have to file some special IRS forms, namely 5471 (every year) and 926 (for years when you transfer property or cash to the offshore co).

Les Edelman
www.edelmantax.com
Les@edelmantax.com

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice contained herein (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

I work in China and am paid partial salary through my US company's rep office here, and partial in USD as an independent contractor (Self Employed) from the American side.

Please share your advice on any and all of the below issues:
1) I'm aware that SE tax on US-based salary is 15.3%. Legally I should also declare my China-based salary to Uncle Sam; so what is the SS/Medicare tax rate on this amount (7.65% or 15.3%)? Can I deduct Chinese taxes paid from the gross amount and just pay SS/Med on net?

2) Again legally I know I should also declare my US-based salary to Chairman Mao. But what is the real likelihood China will investigate this, especially if we're only talking around US$1k/month? If I do declare it in China, can I do this independently of the company (as it's best to keep this amount private from the Chinese side)?

I've done pretty extensive research on these issues, but have yet come across a definitive answer for #1 above. Pertaining to the original question in this forum about reducing SS/Med tax, besides what Edelman mentions about offshores, I think having your company give you a per diem would save you and them from paying taxes on that amount. For large Chinese cities, you can typically get away with US$200-300/day. Although for this to work they may have to declare you as a full-time employee (i'm not clear on whether SE status can get per diems) and pay you a small wage which thus increases their tax burden, but dramatically reduces yours!

Regarding the "American side", it sounds as if the US firm will issue you a 1099-MISC for nonemployee compensation - this will clearly be subject to self-employment tax.

The "Chinese side" is indeed trickier, made more so by your referring to it as the US company's "rep office". What do you mean by "rep office"? - is it simply that, an office of the US company opened in China with no separate legal personality (not a Chinese corporation, etc), or is it a Chinese corporate subsidiary of the US company? It makes a big difference:
--if the rep office is merely an office/branch of the US company with no separate legal personality of its own, then your pay from it is just like pay from the US company (even though paid in yuan/RMB from a Chinese bank acct), and should probably therefore be considered additional self-employment income since the US company is already treating you as self-employed (indeed, the Chinese-paid income should in this case also be reported on the 1099-MISC)
--if the Chinese "rep office" is a separate Chinese subsidiary company, then you need to determine your work relationship to that Chinese company based on US tax rules, i.e., if you are an employee (under US legal/tax principles) then it's wages (no US social security or SE tax), but if you're self-employed with respect to the Chinese company that would just be more income subject to US SE Tax. It's admittedly a bit strange to be a consultant to a US parent co, and an employee of its foreign subsidiary. Usually a US company doing a "split" like this would make you an employee all-around.

Thus, you need to better understand what that "rep office" really is.

Good luck.

Les Edelman
www.edelmantax.com

Circular 230 Disclosure: as stated in prior posting