Bad Timing: Chinese Workers See Paychecks Shrink

Chinese workers are seeing smaller paychecks as their accumulated earnings push them into higher tax brackets. Instead of smoothing payments into equal sizes, workers are getting bumped into higher brackets. Thus despite tax cuts, workers are now given a negative feeling as their paychecks suddenly shrink. On the bright side, for people who realize their withholding is an interest-free loan to the government, this system is superior for workers. Yet the reality is most people do not understand it.

Caixin: 工资为什么比年初下降了?个税前低后高效应渐显
This is directly related to the implementation of the new tax law, the payment of wages and salaries from the previous monthly rate, and the change to the annual withholding method.

  The so-called accumulative deduction method needs to subtract the corresponding deduction according to the monthly accumulated income, calculate the accumulated taxable amount against the withholding rate table, and then subtract the tax paid in the current year to determine the current tax payable. .

  Since the accumulated income at the beginning of each year is low, the lower withholding rate is applied, and the prepaid tax is lower. However, as the accumulated income increases, the applicable withholding rate gradually increases. That is to say, within the same year, the same applicable income rate of wage income is 3%. With the gradual increase of accumulated income, the applicable tax rate is gradually increased to 10%, 20% or even higher.

...For example, Zhang's monthly salary income of 34,000 yuan, is required to pay "five insurance and one gold" 5,000 yuan, deducting 5,000 yuan exemption and 4,000 yuan of special deductions per month. Under the monthly tax rate, the monthly tax payable is a fixed amount of 2,590 yuan, but under the cumulative withholding prepayment method, the advance withholding tax in January is 600 yuan, and then gradually increase, and the prepayment in December The tax deduction amounted to 4,000 yuan.

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