Q&A Further Simplifying and Optimizing Method of IIT Withholding and Prepayment Methods for Part of Taxpayers-Company Formation_Trademark Registration_Tax Service - Hong Kong CPA

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Q&A Further Simplifying and Optimizing Method of IIT Withholding and Prepayment Methods for Part of Taxpayers

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Recently, the State Administration of Taxation issued the "Announcement on Further Simplifying and Optimizing Individual Income Tax (IIT) Withholding and Prepayment the Methods for Some Taxpayers" (hereinafter referred to as the "Announcement"). The following are answers to related questions.

Which taxpayers’ withholding and prepayment methods have been optimized in the "Announcement"?

The "Announcement" mainly optimizes the withholding and prepayment methods for two types of taxpayers:

1.	Resident individuals who have withheld and declared IIT on wages and salaries in the same work unit each month in the last complete tax year and whose annual wage and salary income did not exceed 60,000 yuan.
2、	Resident individuals, such as insurance salesmen and securities brokers, who have withheld and prepaid IIT on labor service remuneration in accordance with the cumulative withholding method.

What conditions need to be met by the above-mentioned type 1 taxpayers?

Type 1 taxpayers need to meet the following three conditions:

1.	Served in the same work unit from January to December of the previous tax year and declared IIT on wages and salaries on a withholding and prepayment basis;
2.	The cumulative wages and salaries income from January to December of the previous tax year (including all kinds of wages and salaries such as one-off bonuses throughout the year, without deduction of any expenses and tax-free income) shall not exceed 60,000 yuan;
3.	From January of current tax year, he is still employed by the work unit and obtains wages and salaries.

What conditions need to be met by the above-mentioned type 2 taxpayers?

Type 2 taxpayers need to meet the following three conditions:

1.	From January to December of the previous tax year, taxpayers received remuneration from the same work unit and withheld and prepaid IIT on labor remuneration on a withholding and prepayment basis;
2.	The cumulative labor remuneration from January to December of the previous tax year (no deduction of any expenses and tax-free income) does not exceed 60,000 yuan;
3.	From January of current tax year, he still obtained labor remuneration from the work unit and withheld and prepaid IIT on the remuneration on a withholding and prepayment basis.

What is the optimized withholding and prepayment method?

For taxpayers who meet the requirements of the "Announcement", when the withholding agent withholds and prepays the individual income tax for current tax year, the accumulated deduction fee will be directly calculated at the annual rate of 60,000 yuan from January. i.e. In the months when the taxpayer's cumulative income does not exceed 60,000 yuan, there is no need to withhold and prepay IIT; in the same month when the cumulative income exceeds 60,000 yuan and subsequent months during the year, TTI will be withheld and prepaid.

When will the "Announcement" be implemented?

The "Announcement" will come into effect on January 1, 2021.

Tom, an employee of Company A, received a salary of 50,000 yuan from Company A from January to December 2020. Company A filed a detailed individual income tax declaration in full amount from January to December 2020. In 2021, Company A is expected to pay Tom 10,000 yuan in January and 4,000 yuan per month from February to December. How should Company A withhold and pay 2021 individual tax for him?

Without considering various deductions such as “three social insurances and one housing fund”, according to the original withholding and prepayment method, Tom needs to prepay individual tax in January 150 yuan ((10000-5000)×3%), and no prepayment is required for other months’ tax. For the whole year, the annual income is less than 60,000 yuan, so 150 yuan can be refunded through the final settlement.
If adopting the new withholding and prepayment method stipulated in this Announcement, Tom can directly deduct the annual accumulated deduction fee of 60,000 yuan from January without prepayment of taxes. At the end of the year, there is no need to handle final settlement.

Jerry, employee of Company B, received a salary of 50,000 yuan from Company B from January to December 2020, and Company B filed a detailed individual income tax declaration in full amount from January to December 2020. In 2021, company B is expected to pay Jerry a monthly salary of 8,000 yuan, and he himself will pay 2,000 yuan of social insurance and housing fund. How should Company B withhold and pay 2021 individual tax for him?

Company B has two methods for withholding and prepaying individual taxes for Jerry:

Method 1: after adopting the new method of withholding and prepaying, from January to July, Jerry does not need to pay IIT as his accumulative income (8,000×7months=56,000 Yuan) is less than 60,000 Yuan; from August onwards, Jerry’s accumulative income will exceed 60,000 Yuan, the monthly IIT payable is as follows:
IIT payable for August = （8000×8-2000×8-60000)×3%-0=0 Yuan
IIT payable for September = （8000×9-2000×9-60000)×3%-0=0 Yuan
IIT payable for October = （8000×10-2000×10-60000)×3%-0=0 Yuan
IIT payable for November = （8000×11-2000×11-60000)×3%-0=180 Yuan
IIT payable for December = （8000×12-2000×12-60000)×3%-180=180 Yuan

Method 2: the withholding agent, i.e. company B and the taxpayer may come to an agreement before filing the tax return in January of current year, and withhold and prepay IIT based on original withholding and prepaying method, by which a monthly 30 Yuan shall be withheld and prepaid.

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