Cumulative Withholding Method on the Monthly Individual Income Tax

Starting from January 2019, the monthly calculation of the individual income taxes of your employees will change. The tax rate will no longer be just based on the amount of the taxable salary of the current month. Instead, in each month the cumulated amount of taxable salary in the current year is determined and the applicable tax rate is based on this cumulative amount. The details of the calculation method are stipulated in the Announcement of the State Administration of Taxation on Promulgation of the Administrative Measures on Declaration of Individual Income Tax Withholding (Trial Implementation), Article 6:

  • Tax amount to be withheld by the employer for the current period = (taxable income amount subject to cumulative withholding × withholding rate – quick calculation deduction) – cumulative tax credit – cumulative withheld amount
  • Taxable income amount subject to cumulative withholding = cumulative income – cumulative tax-exempt income – cumulative deduction expenses – cumulative special deductions – cumulative special additional deductions – cumulative other deductions determined pursuant to the law

The new calculation method implies that for many employees, the applied tax rate will increase at certain month during the year, i.e. the net salary received by the employee will decrease at the same time, as illustrated in the following example. To avoid confusion it may be necessary to explain this to the employees in advance.


An employee has a monthly gross salary of RMB 15,000 and the employee’s monthly contribution for social security and housing fund is RMB 2,450. The monthly lumpsum deduction is RMB 5000. Assume that the employee is further entitled to special deductions for the children’s education, housing and support for the elderly in the amount of total RMB 2,000 per month and there is no other reduction or exemption of income and tax exemption. For January to July 2019, for example, the withholding tax for each month should be calculated according to the following method:

January: Taxable income = 15,000 – 5,000 – 2,450 – 2,000 =RMB 5,550; x Tax rate 3% = RMB 166.5

February: Taxable income = 15,000×2 – 5,000×2 – 2,450×2 – 2,000×2 = RMB 11,100; x Tax rate 3% = RMB 333; less tax credit from previous months RMB 166.5 = 166.5 RMB;

July: Taxable income = 15,000×7 – 5000×7 – 2,450×7 – 2,000×7 = 38,850; x Tax rate 10% = RMB 3,885; less quick calculation deduction 2,520 = RMB 1,365; less tax credit from previous months RMB 166.5×6 = RMB 366;

The tax rates are based on YTD income according to the following table. In the example, it can be seen that from January to June, the cumulated taxable income is below the threshold of 36,000 RMB and the applied tax rate is 3%. In July, when the cumulated taxable income exceeds the threshold, the tax rate changes to 10%. Accordingly, the after tax income of the employee in this example will be higher in the period January-June and the decrease in July.

Individual income tax rates (applicable for consolidated income)


Annual taxable income amount

Tax rate (%)

Quick Calculation Deduction


RMB36,000 or less




The part exceeding RMB36,000 and up to RMB144,000




The part exceeding RMB144,000 and up to RMB300,000




The part exceeding RMB300,000 and up to RMB420,000




The part exceeding RMB420,000 and up to RMB660,000




The part exceeding RMB660,000 and up to RMB960,000




The part exceeding RMB960,000