Understanding China's Individual Income Tax Withholding | Generated by AI
Okay, here is a refined explanation of the cumulative withholding and prepayment method for China’s individual income tax for 2025, designed for better clarity and understanding.
For wage and salary earners in China, Individual Income Tax (IIT) is typically calculated and withheld by the employer on a monthly basis using a cumulative method. This approach helps to distribute the tax burden more smoothly throughout the year, as it considers your year-to-date income and deductions when calculating the tax due each month.
Instead of simply taxing each month’s income in isolation, the cumulative method calculates the total tax potentially owed on your income up to the current month and then subtracts the tax already paid in previous months of the year. The result is the tax amount to be withheld for the current month.
Here’s a breakdown of the key concepts and calculations:
Key Concepts:
- Cumulative Income: Your total gross income from wages and salaries received from your current employer from January 1st of the year up to the end of the current month.
- Cumulative Basic Deduction: This is the standard tax-free threshold. For 2025, it’s 5000 yuan per month. The cumulative basic deduction is calculated as 5000 yuan multiplied by the number of months you have worked for your current employer in the current tax year up to the current month.
- Cumulative Specific Deductions: Mandatory contributions like social insurance (pension, medical, unemployment) and housing provident fund that are deducted from your salary year-to-date.
- Cumulative Specific Additional Deductions: These are optional deductions you can claim for certain expenses, calculated year-to-date. Common examples include:
- Children’s education
- Continuing education
- Serious illness medical expenses
- Housing loan interest
- Housing rent
- Elderly support
- Cumulative Other Deductions Determined According to Law: Other eligible deductions recognized by law, such as certain commercial health insurance premiums, calculated year-to-date.
- Cumulative Taxable Income: The amount subject to tax, calculated by subtracting all cumulative deductions from your cumulative income.
- Cumulative Tax Due: The total tax calculated on your Cumulative Taxable Income using the progressive tax rate table (shown below).
- Cumulative Tax Already Withheld and Prepaid: The total amount of IIT that has already been withheld by your employer and paid to the tax authorities in the previous months of the current year.
The Formulas:
-
Calculate Cumulative Taxable Income: Cumulative Taxable Income = Cumulative Income - Cumulative Tax-Exempt Income - Cumulative Basic Deduction - Cumulative Specific Deductions - Cumulative Specific Additional Deductions - Cumulative Other Deductions Determined According to Law
-
Calculate Current Month’s Tax Due: Current Period’s Due Withholding and Prepayment Tax Amount = (Cumulative Withholding and Prepayment Taxable Income × Applicable Cumulative Withholding Rate - Corresponding Quick Deduction) - Cumulative Tax Reductions and Exemptions - Cumulative Tax Already Withheld and Prepaid
Individual Income Tax Rate Table (Applicable to Cumulative Withholding for Wages/Salaries)
This table is used to calculate the Cumulative Tax Due based on your Cumulative Taxable Income.
| Level | Cumulative Withholding and Prepayment Taxable Income | Pre-withholding Rate | Quick Deduction |
|---|---|---|---|
| 1 | Not exceeding 36,000 yuan | 3% | 0 |
| 2 | Exceeding 36,000 yuan up to 144,000 yuan | 10% | 2,520 |
| 3 | Exceeding 144,000 yuan up to 300,000 yuan | 20% | 16,920 |
| 4 | Exceeding 300,000 yuan up to 420,000 yuan | 25% | 31,920 |
| 5 | Exceeding 420,000 yuan up to 660,000 yuan | 30% | 52,920 |
| 6 | Exceeding 660,000 yuan up to 960,000 yuan | 35% | 85,920 |
| 7 | Exceeding 960,000 yuan | 45% | 181,920 |
Note: The applicable rate and quick deduction are determined by which income level your *Cumulative Taxable Income falls into.*
Case Study: Calculating Zhang San’s IIT in 2025
Let’s follow the example of Zhang San, an employee with variable monthly income and consistent deductions:
- Monthly Income: Jan: 15,000 yuan; Feb: 45,000 yuan; Mar: 15,000 yuan.
- Consistent Monthly Deductions:
- Basic Deduction: 5,000 yuan (standard)
- Specific Deductions (Five Insurances & One Fund): 3,000 yuan
- Specific Additional Deductions:
- Children’s Education: 1,000 yuan
- Housing Loan Interest: 1,000 yuan
- Elderly Support (only child): 2,000 yuan
- Total Monthly Specific Additional Deductions: 1000 + 1000 + 2000 = 4,000 yuan
- Other Deductions (Commercial Health Insurance): 200 yuan
Calculation Steps by Month:
January 2025 (Month 1)
- Cumulative Income: 15,000 yuan
- Cumulative Deductions:
- Basic: 5000 * 1 = 5,000
- Specific: 3000 * 1 = 3,000
- Specific Additional: 4000 * 1 = 4,000
- Other: 200 * 1 = 200
- Total Cumulative Deductions: 5000 + 3000 + 4000 + 200 = 12,200 yuan
- Cumulative Taxable Income: 15,000 (Income) - 12,200 (Deductions) = 2,800 yuan
- Cumulative Tax Due:
- Cumulative Taxable Income (2800) is in Level 1 (< 36000).
- Tax Due = 2800 * 3% - 0 (Quick Deduction) = 84 yuan.
- Cumulative Tax Already Withheld: 0 yuan (This is the first month)
- Current Month’s Tax (January): 84 (Cumulative Tax Due) - 0 (Tax Already Withheld) = 84 yuan
February 2025 (Month 2)
- Cumulative Income: 15,000 (Jan) + 45,000 (Feb) = 60,000 yuan
- Cumulative Deductions:
- Basic: 5000 * 2 = 10,000
- Specific: 3000 * 2 = 6,000
- Specific Additional: 4000 * 2 = 8,000
- Other: 200 * 2 = 400
- Total Cumulative Deductions: 10000 + 6000 + 8000 + 400 = 24,400 yuan
- Cumulative Taxable Income: 60,000 (Income) - 24,400 (Deductions) = 35,600 yuan
- Cumulative Tax Due:
- Cumulative Taxable Income (35,600) is still in Level 1 (< 36000).
- Tax Due = 35,600 * 3% - 0 (Quick Deduction) = 1,068 yuan.
- Cumulative Tax Already Withheld: 84 yuan (from January)
- Current Month’s Tax (February): 1068 (Cumulative Tax Due) - 84 (Tax Already Withheld) = 984 yuan
March 2025 (Month 3)
- Cumulative Income: 60,000 (Feb) + 15,000 (Mar) = 75,000 yuan
- Cumulative Deductions:
- Basic: 5000 * 3 = 15,000
- Specific: 3000 * 3 = 9,000
- Specific Additional: 4000 * 3 = 12,000
- Other: 200 * 3 = 600
- Total Cumulative Deductions: 15000 + 9000 + 12000 + 600 = 36,600 yuan
- Cumulative Taxable Income: 75,000 (Income) - 36,600 (Deductions) = 38,400 yuan
- Cumulative Tax Due:
- Cumulative Taxable Income (38,400) is now in Level 2 (> 36000, < 144000).
- Tax Due = 38,400 * 10% - 2520 (Quick Deduction) = 3840 - 2520 = 1,320 yuan.
- Cumulative Tax Already Withheld: 84 (Jan) + 984 (Feb) = 1,068 yuan
- Current Month’s Tax (March): 1320 (Cumulative Tax Due) - 1068 (Tax Already Withheld) = 252 yuan
As you can see from the case study, the monthly tax withheld can vary based on the cumulative income and how it moves through the tax brackets over the year, even if the monthly income fluctuates. The cumulative method ensures that by the end of the year, the total tax withheld closely matches the annual tax liability based on total annual income and deductions.