How to pay individual income tax on the salary of retired and rehired personnel? Check out the IRD's response!
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How to pay individual income tax for retired and rehired personnel?
The tax office replied!
Question content:
Hello! Retired and rehired employees are the same as regular employees of the enterprise, engaged in long-term fixed work, and their salary income is not accidental income, how to pay individual income tax? Can the special deduction of individual income tax be applied? Thank you!
The IRD replied:
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First, (1) according to the reply of the State Administration of Taxation on how to calculate and levy individual income tax on the income obtained from individual part-time jobs and retirees re-serving (Guo Shui Han [2005] No. 382), the income obtained by retirees from re-employment shall be subject to individual income tax according to the taxable item of "income from wages and salaries" after deducting the deduction standards stipulated in the individual income tax law.
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According to the reply of the Tax Bureau, the editor summarizes the following for you:
1. The income obtained by retirees from re-employment shall be subject to individual income tax according to the taxable item of "income from wages and salaries" after deducting the deduction standard for expenses stipulated in the individual income tax law.
2. Retirees who are reappointed shall meet the following conditions at the same time:
3. In principle, the income obtained by retirees who meet the above conditions from re-employment can be subject to special additional deductions.
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Is the salary of a retired rehired employee considered gross salary?
Is it deducted before corporate income tax according to payroll?
It is a gross salary and can be deducted before corporate income tax.
Policy basis:
1. The Labor and Social Insurance Center Letter [2006] No. 60 "Issues Concerning the Standardization of Social Insurance Payment Base" further clarifies that "various expenditures related to the treatment of retirees, retirees and retirees" do not belong to the total salary, but "the labor remuneration of retired personnel hired and retained" belongs to the scope of the total salary.
2. Announcement No. 15 of 2012 of the State Administration of Taxation "Announcement of the State Administration of Taxation on Several Issues Concerning the Tax Treatment of Taxable Income of Enterprise Income Tax" clearly states that the actual expenses incurred by enterprises due to the employment of rehired retirees should be divided into wage and salary expenses and employee welfare expenses, and deducted before enterprise income tax in accordance with the provisions of the Enterprise Income Tax Law. If it is a wage and salary expense, it is allowed to be included in the base of the total wages and salaries of the enterprise as the basis for calculating the deduction of other related expenses.
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10 key points related to taxes such as retirees' salaries
1. Retirement salary, retirement salary, and retirement living allowance are exempt from tax
Paragraph 7 of Article 4 of the Individual Income Tax Law of the People's Republic of China stipulates that the settling-in allowance, retirement allowance, basic pension or retirement allowance, retirement allowance and retirement allowance paid to cadres and employees in accordance with the unified provisions of the state shall be exempted from individual income tax.
It should be reminded that if retirees also receive reemployment wages, they do not need to combine retirement salary, retirement salary and retirement living allowance to calculate and pay individual income tax; Retirees who receive retirement salary, retirement salary and retirement living allowance do not need to be summarized into comprehensive income to calculate and pay individual income tax.
2. Retirees who receive various subsidies other than retirement wages or pensions from their former employers shall pay individual income tax according to their salary income
The reply of the State Administration of Taxation on the levy of individual income tax on bonuses and subsidies other than retirement wages issued by retirees (Guo Shui Han [2008] No. 723) stipulates that in addition to receiving retirement wages or pensions according to regulations, all kinds of subsidies, bonuses and in-kind subsidies obtained by retirees from their former employers do not belong to the retirement allowances, retirement allowances and retirement living subsidies that can be taxed as stipulated in Article 4 of the Individual Income Tax Law of the People's Republic of China. According to the relevant provisions of the Individual Income Tax Law of the People's Republic of China and its implementing regulations, all kinds of subsidies, bonuses and in-kind obtained by retirees from their former employers shall be subject to individual income tax according to the taxable item of "income from wages and salaries" after deducting the deduction standard for expenses.
In layman's terms, all kinds of subsidies, bonuses and in-kind "issued" by the former employer to retirees need to be withheld and prepaid in accordance with the relevant provisions of the "Announcement of the State Administration of Taxation on Issuing the Administrative Measures for the Withholding and Declaration of Individual Income Tax in < (Trial>) (Announcement No. 61 of 2018 of the State Administration of Taxation) in accordance with the relevant provisions of the "income from wages and salaries", and the retirees decide whether they need to settle and pay according to the comprehensive income tax.
3. Individual income tax shall be payable on the income obtained by retirees from re-employment
The reply of the State Administration of Taxation on how to calculate and levy individual income tax on the income obtained from individual part-time jobs and retirees (Guo Shui Han [2005] No. 382) stipulates that the income obtained by individual part-time jobs shall be subject to individual income tax according to the taxable item of "income from remuneration for labor services"; The income obtained by retirees from re-employment shall be subject to individual income tax according to the taxable item of "income from wages and salaries" after deducting the deduction standard for expenses stipulated in the individual income tax law.
The Announcement of the State Administration of Taxation on Issues Concerning Individual Income Tax (Announcement No. 27 of 2011 of the State Administration of Taxation) stipulates that in Article 3 of Guo Shui Han [2006] No. 526, whether an employer pays social insurance premiums for retirees is no longer a defining condition for retirees to re-appoint.
In layman's terms, the reappointment of retirees should be analyzed according to the specific situation to determine whether to pay individual income tax according to the taxable items of "income from wages and salaries" or "income from remuneration for labor services".
4. The income from wages and salaries obtained by retirees shall be subject to individual income tax in accordance with comprehensive withholding and prepayment and final settlement
Individual income tax on comprehensive income (income from wages, salaries, remuneration for labor services, author's remuneration, and royalties) obtained by resident individuals shall be calculated on a consolidated basis according to the tax year.
The comprehensive income of individual residents shall be the balance of the income of each tax year after deducting expenses of 60,000 yuan and special deductions (including social insurance premiums such as basic endowment insurance, basic medical insurance, unemployment insurance and housing provident fund, etc.), special additional deductions (including expenses such as children's education, continuing education, serious illness medical treatment, housing loan interest or housing rent, and supporting the elderly) and other deductions determined in accordance with the law.
Generally speaking, retirees who receive wages and salaries/labor remuneration after re-serving can deduct special additional deductions such as children's education, continuing education, serious illness medical treatment, housing loan interest or housing rent, and supporting the elderly when they are withheld and prepaid/settled according to regulations.
5. The salaries and subsidies obtained by senior experts who have extended the retirement age from their units are tax-exempt as retirement wages
The Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning Individual Income Tax on Income from Wages and Salaries Obtained by Senior Experts during the Extension of Retirement Period (CS [2008] No. 7) stipulates that senior experts who extend the retirement age refer to experts, scholars and academicians of the Chinese Academy of Sciences and the Chinese Academy of Engineering who enjoy special government allowances issued by the state. Senior experts who extend the retirement age are exempt from individual income tax in accordance with the following provisions:
(1) The wages, salaries, bonuses, allowances, subsidies and other income obtained by senior experts from the units where their labor and personnel relations are located and uniformly paid to employees by the units in accordance with the relevant provisions of the state shall be regarded as retirement wages and shall be exempted from individual income tax;
(2) Individual income tax shall be levied in accordance with the law on the income of various items other than the income mentioned in item 1 above, as well as the training fees, lecture fees, consultant fees, author's remuneration and other income obtained by senior experts from other places other than the unit where their labor and personnel relations are located.
6. The one-time subsidy income obtained by an individual from early retirement shall be taxed according to salary income
The Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning the Convergence of Relevant Preferential Policies after the Revision of the Individual Income Tax Law (CS [2018] No. 164) stipulates that the one-time subsidy income obtained by an individual through early retirement procedures shall be evenly apportioned according to the actual number of years between the early retirement procedures and the statutory retirement age, and the applicable tax rate and quick deduction shall be determined, and the comprehensive income tax rate table shall be applied separately to calculate the tax. Calculation formula:
Tax payable = { [(one-time subsidy income÷ the actual number of years of early retirement to the statutory retirement age) - expense deduction standard] ×applicable tax rate - quick deduction} × the actual number of years of early retirement to the statutory retirement age.
7. One-time subsidy income obtained by individuals through internal retirement procedures
The Notice of the State Administration of Taxation on Policy Issues Concerning Individual Income Tax (GSF [1999] No. 58) stipulates that the wages and salaries obtained by an individual who implements internal retirement from his original employer between the internal retirement procedures and the statutory retirement age do not belong to retirement wages and shall be subject to individual income tax according to the item of "income from wages and salaries".
The one-time income obtained by an individual from the original employer after going through the internal retirement procedures shall be averaged according to the month between the internal retirement procedures and the statutory retirement age, and the deduction standard of the current month's expenses shall be deducted from the income of the "wages and salaries" of the month after being combined, and the applicable tax rate shall be determined based on the balance, and then the wages and salaries of the current month plus the one-time income obtained, minus the expense deduction standard, and the individual income tax shall be calculated and levied at the applicable tax rate.
The income from "wages and salaries" obtained by individuals from re-employment between the internal retirement procedures and the statutory retirement age shall be combined with the income from the "wages and salaries" obtained from the original employer in the same month, and the individual income tax shall be declared and paid to the in-charge taxation authorities in accordance with the law.
8. Other taxable income of retirees shall be subject to individual income tax in accordance with the law
According to the provisions of the Individual Income Tax Law, the income from the production and operation of self-employed individuals, the income from contracting and leasing of enterprises and institutions, the income from remuneration for labor services, the income from author's remuneration, the income from property leasing, the income from property transfer, the income from interest and dividends, the incidental income and other income obtained by retirees shall be subject to individual income tax in accordance with the law.
9. Retirees' salaries, benefits, and other expenses that are not directly related to the income obtained cannot be deducted before tax
According to the notice of the General Office of the State Administration of Taxation on strengthening the rectification of common tax risks of some designated enterprises of the State Administration of Taxation (Shui Zong Ban Han [2014] No. 652) on "1. Pre-tax deduction of wages and benefits of retirees and other expenses not directly related to the income": in accordance with Article 8 of the Enterprise Income Tax Law of the People's Republic of China (hereinafter referred to as the "Enterprise Income Tax Law") and Article 27 of the Regulations for the Implementation of the Enterprise Income Tax Law of the People's Republic of China, Retirees' wages, welfare expenses and other expenses that are not directly related to the income obtained by the enterprise shall not be deducted before the enterprise income tax.
10. The wages and salaries of rehired retirees and the expenses of employee welfare expenses shall be deducted before tax according to the regulations
According to the announcement of the State Administration of Taxation on several tax treatment issues concerning the taxable income of enterprise income tax (Announcement No. 15 of 2012 of the State Administration of Taxation), "1. Regarding the pre-tax deduction of seasonal workers, temporary workers and other expenses, the actual expenses incurred by enterprises in hiring seasonal workers, temporary workers, interns, re-employed retirees and accepting external labor dispatch shall be divided into wage and salary expenses and employee welfare expenses, and shall be deducted before enterprise income tax in accordance with the provisions of the Enterprise Income Tax Law. If it is a wage and salary expense, it is allowed to be included in the base of the total wages and salaries of the enterprise as the basis for calculating the deduction of other related expenses. ”
It should be reminded that although the enterprise does not pay social insurance premiums for retirees, the wages generated by re-employing retirees can be deducted before income tax.
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