How is personal income tax calculated from salaries and wages? Who is required to pay personal income tax on salaries and wages? Formula and steps for calculating personal income tax on salaries and wages.
Tax-exempt amounts from salaries and wages, personal and dependent deductions when calculating personal income from salaries and wages, etc., are specifically regulated in... Consolidated document No. 05_VBHN-BTC on personal income tax
– Individuals who pay personal income tax are resident individuals. However, not all individuals are required to pay tax; only those with taxable income are liable to do so.
– Only individuals with an income exceeding 9 million VND/month (if they have no dependents) are required to pay personal income tax; if they have one dependent, their income must exceed 12,6 million VND/month.
Personal income tax on income from salaries and wages is determined according to the following formula:
| (1) Personal income tax payable | = | Taxable income | x | Tax |
In which:
| (2) Taxable income | = | Income taxes |
|
Deductions |
Taxable income is calculated as follows:
| (3) Taxable income | = | total income | Exemptions |
Based on the tax calculation formula above, to calculate the amount of tax payable, please follow these steps in order:
Step 1: Calculate total taxable income.
Step 2: Calculate the exempted amounts.
Step 3: Calculate taxable income using formula (3)
Step 4: Calculate the deductions.
Step 5: Calculate taxable income using formula (2)
Step 6: Calculate the amount of tax payable according to formula (1)
Currently, there are three methods for calculating personal income tax on salaries and wages for three different groups of people, specifically:
– Calculated according to the progressive tax rate schedule: Applicable to resident individuals who sign employment contracts with a term of 3 months or more;
– 10% deduction: Applies to individuals who sign employment contracts for a term of less than 3 months or who do not sign employment contracts.
– 20% deduction: Applies to non-resident individuals, usually foreigners.
Tax rates: Progressive tax rates
|
Tax bracket |
Taxable income per year (million VND) |
Taxable income per month (million VND) |
Tax rate (%) |
|
1 |
Go to 60 |
Go to 5 |
5 |
|
2 |
On 60 to 120 |
On 5 to 10 |
10 |
|
3 |
On 120 to 216 |
On 10 to 18 |
15 |
|
4 |
On 216 to 384 |
On 18 to 32 |
20 |
|
5 |
On 384 to 624 |
On 32 to 52 |
25 |
|
6 |
On 624 to 960 |
On 52 to 80 |
30 |
|
7 |
On 960 |
On 80 |
35 |
Personal income tax on income from salaries and wages is the total tax calculated according to each income bracket. The tax calculated for each income bracket is equal to the taxable income of that bracket multiplied by the corresponding tax rate of that bracket.
Tax calculation method using the simplified formula
For convenience in calculation, the simplified calculation method according to Appendix No. 01/PL-TNCN issued with Circular 111/2013/TT-BTC can be applied as follows:
|
Step |
Taxable income/month |
Tax |
Calculate the amount of tax payable. |
|
|
Option 1 |
Option 2 |
|||
|
1 |
Up to 5 million VND (VND) |
5% |
0 VND + 5% Taxable Income |
5% TNTT |
|
2 |
From 5 million VND to 10 million VND |
10 % |
0,25 million VND + 10% of the total tax on a total of over 5 million VND. |
10% of the taxable income – 0,25 million VND |
|
3 |
From 10 million VND to 18 million VND |
15 % |
0,75 million VND + 15% of the total tax on a total of over 10 million VND. |
15% of the taxable income – 0,75 million VND |
|
4 |
From 18 million VND to 32 million VND |
20 % |
1,95 million VND + 20% of the total tax on a total of over 18 million VND. |
20% of the taxable income – 1,65 million VND |
|
5 |
From 32 million VND to 52 million VND |
25 % |
4,75 million VND + 25% of the total tax on a total of over 32 million VND. |
25% of the taxable income – 3,25 million VND |
|
6 |
From 52 million VND to 80 million VND |
30 % |
9,75 million VND + 30% of the total tax on a total of over 52 million VND. |
30% of the taxable income – 5,85 million VND |
|
7 |
Over 80 million VND |
35 % |
18,15 million VND + 35% of the total tax on a total of over 80 million VND. |
35% of the taxable income – 9,85 million VND |
Income from salaries and wages is the income that employees receive from their employers, including:
– Salaries, wages, and other payments of a similar nature, whether in monetary or non-monetary form.
– Allowances and subsidies, excluding 11 types of allowances and subsidies.
– Remuneration received in various forms such as:
+ Sales commission for agents, brokerage commission;
+ Funds for participation in scientific and technical research projects;
+ Funds for participating in projects and programs;
+ Royalties as stipulated by law regarding the royalty system;
+ Fees for participating in teaching activities;
+ Fees for participating in cultural, artistic, physical education, and sports performances;
+ Advertising service fees; other service fees, other remuneration.
– Money received from membership in business associations, corporate boards of directors, corporate supervisory boards, project management boards, management councils, professional associations, and other organizations.
– Monetary or non-monetary benefits other than salaries and wages paid by the employer that the taxpayer receives in any form.
– Cash or non-cash bonuses of all forms, including bonuses in the form of securities, except for the following bonuses:
+ Bonuses accompanying titles awarded by the State, including bonuses accompanying emulation titles and other forms of commendation as prescribed by law on emulation and commendation.
+ Bonuses accompanying national and international awards recognized by the Vietnamese government.
+ Bonuses for technical improvements, inventions, and discoveries recognized by competent state agencies.
+ Rewards for detecting and reporting violations of the law to competent state authorities.
Income from salaries and wages that is exempt from tax includes income from the portion of salaries and wages for night work and overtime work that is paid at a higher rate than the salaries and wages for daytime work and work during regular hours as stipulated in the Labor Code, specifically as follows:
– The portion of higher wages or salaries paid for night work or overtime is tax-exempt based on the actual wages or salaries paid for night work or overtime minus (-) the amount of wages or salaries calculated based on normal working days.
For example: Mr. A's normal daily wage, as stipulated in the Labor Code, is 40.000 VND/hour.
– In the case of an individual working overtime on a weekday, if the individual is paid 60.000 VND/hour, the tax-exempt income is:
60.000 VND/hour – 40.000 VND/hour = 20.000 VND/hour
– In the case of an individual working overtime on a day off or public holiday, if the individual is paid 80.000 VND/hour, the tax-exempt income is:
80.000 VND/hour – 40.000 VND/hour = 40.000 VND/hour
– Organizations and individuals paying income must prepare a statement clearly reflecting the time worked at night, overtime, and the additional wages paid to employees for night work and overtime. This statement must be kept at the income-paying unit and presented upon request by the tax authorities.
In addition to the tax-exempt amounts from salaries and wages mentioned above, employees will not be subject to tax on the following income: lunch allowance, meal allowance, telephone allowance, etc.
4 deductions when calculating personal income tax
Deductions are amounts deducted before calculating tax on income from salaries and wages for resident individual taxpayers. Below are four types of deductions when calculating personal income tax.
1. Personal deductions for the taxpayer
– Deduction amount: According to clause b.1, point b, paragraph 1, Article 9 of Circular 111/2013/TT-BTC, the personal deduction amount for taxpayers is VND 09 million/month, or VND 108 million/year.
Taxpayers with multiple sources of income from salaries and wages can choose to claim personal deductions for themselves at only one location at a time (calculated on a monthly basis).
– For foreigners residing in Vietnam, the personal allowance is calculated from January or from the month of arrival in Vietnam (in the case of an individual's first presence in Vietnam) until the month the employment contract ends and they leave Vietnam within the tax year (calculated in full by month).
– If, during the tax year, an individual has not claimed any personal deductions or has claimed deductions for less than 12 months, they are entitled to claim the full 12 months of deductions when filing their tax return as per regulations.
2. Personal deductions for dependents
Note: Dependent deductions are only granted if the taxpayer is registered for tax and has been issued a tax identification number.
The personal allowance for each dependent is VND 3.6 million per month. To be eligible for this allowance, the dependent must meet the eligibility criteria as stipulated below.
1. Children of the taxpayer, stepchildren of the spouse.
1.1. Specific target
Children who are considered dependents include biological children, legally adopted children, illegitimate children, stepchildren of the wife, and stepchildren of the husband.
However, not all children are considered dependents; they must fall into the following specific categories:
– Children under 18 years old (calculated in full months).
– Children aged 18 and above who are disabled and unable to work.
– Children currently studying in Vietnam or abroad at the university, college, vocational high school, or vocational training level, including children aged 18 and above who are studying at the high school level (including the period from June to September of the 12th grade while waiting for university entrance exam results) who have no income or whose average monthly income from all sources does not exceed 1 million VND.
1.2. Conditions for personal allowance deduction
Taxpayers are entitled to a personal allowance for dependents if they are registered for tax and have been issued a tax identification number.
2. Spouse; father, mother, and other individuals
2.1. Specific target
According to clauses d.2, d.3 and d.4 of point d, paragraph 1, Article 9 of Circular 111/2013/TT-BTC, dependents include spouse; parents and other individuals:
– The taxpayer's spouse.
– Biological father, biological mother; father-in-law, mother-in-law (or husband's father, husband's mother); stepfather, stepmother; legal adoptive father, legal adoptive mother of the taxpayer.
– Other dependents whom the taxpayer is directly supporting include:
+ The taxpayer's older and younger siblings.
+ Paternal grandparents; maternal grandparents; paternal aunts, maternal aunts, paternal uncles, paternal uncles, and paternal cousins of the taxpayer.
+ The taxpayer's nieces and nephews include: the children of the taxpayer's older and younger siblings.
+ Other persons who are required to provide direct support as stipulated by law.
However, not everyone in the above category is considered a dependent and is eligible for the 3.6 million VND/month deduction; they must meet other conditions.
Case 1: For individuals of working age, the following conditions must be met simultaneously:
– Disabled and unable to work: Disabled and unable to work refers to individuals who fall under the scope of laws on disabled persons, or those suffering from illnesses that render them unable to work (such as AIDS, cancer, chronic kidney failure, etc.).
– No income or average monthly income from all sources during the year does not exceed 01 million VND.
Case 2: For individuals outside the working age, they must have no income or their average monthly income from all sources during the year must not exceed 01 million VND.
2.2. Conditions for personal allowance deduction
Taxpayers are entitled to a personal allowance for dependents if they are registered for tax and have been issued a tax identification number.
Accordingly, in order to receive tax deductions for dependents, employees must prepare the necessary documents and register their dependents.
3. Compulsory insurance, voluntary retirement funds
According to Clause 2, Article 9 of Circular 111/2013/TT-BTC, deductions for insurance contributions and voluntary retirement fund contributions are regulated as follows:
– Insurance contributions include: Social insurance, health insurance, unemployment insurance, and professional liability insurance for certain occupations that are required to participate in mandatory insurance.
– Mandatory insurance deductions: Social insurance 8%, health insurance 1,5%, unemployment insurance 1%.
– Contributions to voluntary retirement funds and voluntary retirement insurance are deductible from taxable income based on actual income, but not exceeding 01 million VND/month for employees participating in voluntary retirement products as guided by the Ministry of Finance. This includes both the amount contributed by the employer and the amount contributed by the employee (if any), even in cases of participation in multiple funds.
The basis for determining deductible income is a photocopy of the payment receipt (or fee payment receipt) issued by the voluntary pension fund or insurance company.
Note: Insurance contributions and voluntary retirement fund contributions made in a given year are deductible from taxable income in that year.
4. Charitable, humanitarian, and educational contributions.
Based on Clause 3, Article 9 of Circular 111/2013/TT-BTC, the deductions for charitable, humanitarian, and educational contributions are as follows:
* Deductions:
Charitable, humanitarian, and educational contributions are deductible from taxable income from salaries and wages before tax calculation for resident individual taxpayers, including:
– Contributions to organizations and facilities that care for and nurture children in extremely difficult circumstances, people with disabilities, and elderly people without support.
– Contributions to charitable funds, humanitarian funds, and scholarship funds established and operating in accordance with the regulations in Decree 30/2012/ND-CP (which expired on January 15, 2020, due to Decree 93/2019/ND-CP. However, Decree 30/2012/ND-CP was still in effect in 2019).
* Discount amount:
– The maximum deduction shall not exceed the taxable income from salaries and wages for the tax year in which the charitable, humanitarian, and educational contributions are made.
– Documents proving charitable, humanitarian, and educational contributions are legally valid receipts issued by central or provincial organizations and funds.
Note:
Charitable, humanitarian, and educational contributions made in any given year are deductible from taxable income in that tax year; any remaining undeducted amount cannot be deducted from taxable income in the following tax year.
