Adjustment of individual income tax withholding method to be implemented from July 1, 2020

On July 29, the State Administration of Taxation issued the "Announcement on Improving and Adjusting the Withholding and Prepayment Methods of Personal Income Tax for Some Taxpayers", which pointed out that for resident individuals who obtain wages and salaries for the first time in a tax year, the withholding agents can calculate the cumulative deductible expenses based on 5,000 yuan/month multiplied by the number of months in the taxpayer's year ending this month when withholding and prepaying personal income tax.

The announcement shall come into effect on July 1, 2020. Taxpayers who were employed or interning before July 1, 2020 and have overpaid personal income tax can still apply for a tax refund when they file their comprehensive income tax return in the following year.

Full announcement:

State Administration of Taxation

Announcement on Improving and Adjusting the Withholding and Prepayment Methods of Individual Income Tax for Some Taxpayers

State Administration of Taxation Announcement No. 13 of 2020

In order to further support stable employment and protect employment, and reduce the tax burden of new employees during the withholding and prepayment stage of individual income tax, the following announcement is hereby made on improving and adjusting the individual income tax withholding and prepayment methods for employees who first obtain wages and salaries in the middle of the year:

1. For individual residents who receive wages and salaries for the first time in a tax year, the withholding agent may calculate the cumulative deductible expenses by multiplying RMB 5,000 per month by the number of months in the taxpayer's year ending in this month when withholding and prepaying individual income tax.

2. For students who are receiving full-time academic education and receive labor remuneration due to internships, the withholding agent may calculate and withhold the tax in accordance with the cumulative withholding method stipulated in the "Notice of the State Administration of Taxation on the Issuance of the "Administrative Measures for the Withholding and Declaration of Individual Income Tax (Trial)" (No. 61 of 2018) when withholding and prepaying individual income tax.
3. Taxpayers who meet the requirements of this announcement and can withhold and prepay individual income tax in accordance with the above provisions shall promptly declare to the withholding agent and truthfully provide relevant supporting materials or commitment letters, and shall be responsible for the authenticity, accuracy and completeness of the relevant materials and commitment letters. Taxpayers and withholding agents are required to retain relevant materials or letters of commitment for future reference.

4. The resident individuals who obtain wages and salaries for the first time as mentioned in this announcement refer to those resident individuals who have not obtained wages and salaries or have not withheld or prepaid individual income tax on continuous labor remuneration income according to the cumulative withholding method from the first month of the tax year to the time of new employment.

This announcement shall come into effect on July 1, 2020.

This is to announce.

State Administration of Taxation

July 28, 2020

Policy interpretation:

In order to better implement the spirit and requirements of the "Six Guarantees" and "Six Stabilizers" of the Party Central Committee and the State Council, and further reduce the tax burden of graduates and other first-time employees in the middle of the year and interns during the withholding and advance payment stage, the State Administration of Taxation has issued the "Announcement on Improving and Adjusting the Withholding and Advance Payment Methods of Personal Income Tax for Some Taxpayers" (hereinafter referred to as the "Announcement").

1. What adjustments have been made to the withholding and advance payment methods for wages and salaries earned by first-time employed individuals in the year?

For resident individuals who receive wages and salaries for the first time in a tax year, the withholding agent may deduct the cumulative deductible expenses (5,000 yuan/month) calculated from the beginning of the year when withholding and prepaying personal income tax on wages and salaries. For example, after graduating in July 2020, college student Xiao Li started working in a company. When the company pays July wages and calculates the personal income tax to be withheld and prepaid in the current period, it can deduct expenses of 35,000 yuan (7 months x 5,000 yuan/month).