Content checked: November 3, 2026. The separate annual bonus IIT policy currently runs through December 31, 2027.
China bonus tax is not a separate flat “supplemental wage” tax. For a resident individual, a payment that qualifies as an annual one-time bonus may, through December 31, 2027, either be taxed separately using the bonus divided by 12 to select a rate or be included in annual comprehensive income. The better result depends on the employee’s full-year income and deductions. Employers must first confirm eligibility, compare both methods, withhold and report IIT correctly, and retain the policy, approval, calculation, filing, and payment evidence.
This guide focuses on the employer and payroll decisions for annual bonuses. For the wider monthly process covering gross salary, deductions, statutory contributions, and net pay, use HROne’s China payroll guide.
China bonus tax: the employer decision in five steps
- Confirm the employee’s IIT status. The separate annual one-time bonus method under the current annual one-time bonus policy applies to resident individuals. Do not apply it automatically to a non-resident employee.
- Classify the payment by substance. Confirm whether it is genuinely based on the employer’s annual results and the employee’s full-year performance assessment, rather than merely carrying a “bonus” label.
- Check whether the method is still available. The separate method may be used only once per taxpayer in a tax year, not once per employer or once per payment.
- Model both permitted methods. Compare separate taxation with inclusion in annual comprehensive income using the employee’s projected full-year taxable income and deductions.
- Complete the payroll control trail. Approve the gross amount and calculation before cutoff, withhold IIT when paying the bonus, file and remit the tax, and reconcile the result to the payslip, payroll register, tax return, and bank payment.
The tax calculation is only one part of the decision. The compensation policy determines whether the employee is entitled to the payment; the IIT rules determine how an eligible payment is taxed. Payroll should not change an earned or contractually promised bonus merely to reach a preferred tax result.
Policy validity: The separate individual income tax calculation for an eligible annual one-time bonus is currently available through December 31, 2027 under Ministry of Finance and State Taxation Administration Announcement No. 30 of 2023. An eligible resident individual may instead include the bonus in annual comprehensive income. Do not assume the separate method will continue after 2027 without a new official announcement.
Which payments qualify as an annual one-time bonus?
Annual Bonus vs. 13th-Month Pay: Tax Treatment
| Payment type | Separate annual one-time bonus calculation? | Employer check |
|---|---|---|
| Eligible annual one-time bonus | Yes, for a qualifying resident individual through December 31, 2027; the employee may instead include it in comprehensive income | Annual performance-assessment and tax eligibility documents |
| 13th-month salary / year-end double pay | Only where the actual payment meets the official annual one-time bonus definition; the label alone is insufficient | Contractual promise, payment basis and tax classification |
| Monthly or quarterly performance bonus | Not automatically; normally handled with applicable wage and salary IIT | Payment frequency and policy |
| Signing, retention or project bonus | Not automatically; a one-off label does not itself qualify | Purpose, service period and withholding method |
See MOF/STA Announcement No. 30 of 2023 for the resident individual policy. The legal entitlement to 13th-month pay in China is a separate employment-contract question.
These labels are not interchangeable for tax purposes. An eligible annual one-time bonus can use the separate calculation under the published policy; an ordinary monthly, quarterly or signing payment does not automatically qualify. A contractual 13th-month payment should be reviewed against the tax authority’s definition of annual one-time bonus and the underlying compensation policy before payroll selects a treatment. For when 13th-month pay becomes payable under an employment arrangement, see 13th-month pay in China.
The official annual one-time bonus definition covers a one-off payment made by a withholding agent based on its annual economic performance and a comprehensive assessment of the employee’s work over the year. It can also include a year-end salary increase or annual salary and performance pay settled following an annual assessment.
Eligibility depends on the payment’s substance and supporting documents. A payment does not qualify simply because it is paid in December, described as a year-end bonus, or processed as a separate payroll line.
| Payment type | Likely payroll treatment | Employer action |
|---|---|---|
| One-off annual performance bonus based on full-year company and employee results | Potentially eligible for the annual one-time bonus method | Keep the annual bonus policy, assessment basis, approval, and calculation |
| Year-end salary increase or annual performance pay settled after annual assessment | Potentially eligible if it meets the official definition | Confirm that the documentation matches the actual payment arrangement |
| Half-year, quarterly, overtime, attendance, or similar periodic award | Generally combined with the employee’s wage and salary income for the payment month | Process through ordinary payroll withholding rather than the special annual method |
| Signing, retention, project-completion, or ad hoc incentive | Do not assume eligibility merely because it is paid once | Review the purpose, assessment period, policy wording, and filing treatment before payroll |
| Fixed 13th-month payment | Requires separate review of both contractual entitlement and tax classification | First determine what the employer has promised, then test whether the payment meets annual one-time bonus conditions |
A 13th-month payment and an annual performance bonus can create different labor-law and payroll questions. HROne’s guide to 13th-month pay in China addresses whether the payment is legally or contractually required; this article addresses the narrower IIT treatment.
How the separate annual bonus method works
For an eligible annual one-time bonus paid to a resident individual, divide the gross bonus by 12 only to identify the applicable tax rate and quick deduction. Then apply that rate to the full bonus:
Annual bonus IIT = Gross annual one-time bonus × Applicable rate − Quick deduction
Do not tax only the one-twelfth amount. Do not multiply the quick deduction by 12. The division step selects the bracket; it does not spread the payment over 12 payroll months.
| Bonus divided by 12 | Equivalent gross bonus range | Rate | Quick deduction |
|---|---|---|---|
| RMB 3,000 or less | RMB 36,000 or less | 3% | RMB 0 |
| Over RMB 3,000 to RMB 12,000 | Over RMB 36,000 to RMB 144,000 | 10% | RMB 210 |
| Over RMB 12,000 to RMB 25,000 | Over RMB 144,000 to RMB 300,000 | 20% | RMB 1,410 |
| Over RMB 25,000 to RMB 35,000 | Over RMB 300,000 to RMB 420,000 | 25% | RMB 2,660 |
| Over RMB 35,000 to RMB 55,000 | Over RMB 420,000 to RMB 660,000 | 30% | RMB 4,410 |
| Over RMB 55,000 to RMB 80,000 | Over RMB 660,000 to RMB 960,000 | 35% | RMB 7,160 |
| Over RMB 80,000 | Over RMB 960,000 | 45% | RMB 15,160 |
These rates and quick deductions come from the official monthly-converted comprehensive income tax rate table. The gross bonus ranges above are the corresponding monthly thresholds multiplied by 12.
Worked example: RMB 120,000 annual bonus
An eligible resident employee receives a gross annual one-time bonus of RMB 120,000.
- RMB 120,000 ÷ 12 = RMB 10,000.
- RMB 10,000 falls in the 10% bracket with a RMB 210 quick deduction.
- Bonus IIT = RMB 120,000 × 10% − RMB 210 = RMB 11,790.
- Net bonus after this IIT withholding = RMB 108,210.
This calculation covers the bonus only. The employee’s regular salary remains subject to the applicable salary withholding calculation.
Watch the separate-method bracket cliffs
The separate method has discontinuities immediately above the gross bonus thresholds of RMB 36,000, RMB 144,000, RMB 300,000, RMB 420,000, RMB 660,000, and RMB 960,000. A small increase above a threshold can move the full bonus into the next rate.
For example, IIT on a RMB 36,000 bonus is RMB 1,080. IIT on a RMB 36,001 bonus is RMB 3,390.10. Although the gross amount rises by RMB 1, the employee’s net bonus falls from RMB 34,920 to RMB 32,610.90.
Employers should therefore model approved bonus amounts before communicating a net expectation. They should not reduce, relabel, or split compensation after it has been earned merely to obtain a lower tax result.
How is a non-resident individual’s multi-month bonus taxed?
The resident annual one-time bonus method described above does not apply to a non-resident individual. Under MOF/STA Announcement No. 35 of 2019, a China-taxable multi-month bonus is calculated separately from the individual’s monthly salary and is not combined with other wage and salary income received in that month.
Non-resident multi-month bonus IIT = [(China-taxable multi-month bonus income ÷ 6) × Applicable rate − Quick deduction] × 6
No standard expense deduction is allowed in this calculation. The six-month allocation method may be used only once for each non-resident individual in a calendar year.
For a non-domiciled employee, first determine the China-source portion of the multi-month bonus based on the work period to which the bonus relates. The China-taxable amount should then be determined under the applicable non-resident rules before the formula is applied.
Separate taxation or inclusion in comprehensive income?
For the salary side of the comparison, review how monthly IIT withholding works.
There is no universally better method. Under separate taxation, the qualifying bonus is calculated outside annual comprehensive income using the monthly-converted rate table. Under the combined method, the bonus becomes part of the employee’s annual comprehensive income and is affected by annual salary, the RMB 60,000 standard deduction, employee statutory deductions, special additional deductions, other lawful deductions, and IIT already prepaid.
| Employee situation | Why it matters |
|---|---|
| Annual taxable comprehensive income is low after deductions | Combining the bonus may make better use of deductions that would otherwise remain unused |
| Annual salary already uses higher comprehensive-income brackets | Separate treatment may prevent the qualifying bonus from increasing the rate applied within annual comprehensive income |
| Bonus is close to a separate-method threshold | The bracket cliff can make the separate result unexpectedly expensive |
| Employee has changing deductions, multiple income sources, or a mid-year employment change | A payroll-month estimate may differ from the final annual reconciliation result |
| Employee has more than one annual bonus or more than one employer | Only one qualifying bonus amount can use the separate method in the tax year |
The taxpayer has the choice between the permitted methods. Payroll should calculate both scenarios using the best available full-year data, explain that the result may change if the employee’s income or deductions change, and document the method applied at withholding.
The Shanghai tax authority’s annual bonus FAQ confirms that a resident individual whose bonus was separately taxed at withholding can choose to include it in comprehensive income during annual reconciliation through the Individual Income Tax app. The annual reconciliation period for resident comprehensive income is generally March 1 to June 30 of the following year.
Employer payroll workflow for an annual bonus
1. Confirm the employee’s tax profile
Verify the employee’s taxpayer identification information and whether the employee is a resident individual for the relevant tax year. Foreign nationality does not by itself determine the result. Days in China, domicile, income sourcing, and assignment arrangements may need review.
2. Confirm the payment’s legal and policy basis
Check the employment contract, bonus plan, employee handbook, annual assessment criteria, management approval, and any prior consistent practice. HR should determine whether the amount is discretionary, formula-based, contractually promised, prorated for joiners or leavers, or subject to performance conditions. Tax classification should follow the actual arrangement.
3. Check prior use of the separate method
The once-per-tax-year restriction applies to the taxpayer. An employee may have received another qualifying bonus from a previous or concurrent employer. Obtain a written employee confirmation where appropriate and do not assume that the method remains available merely because the current company has not used it.
4. Model and approve both tax treatments
Prepare a side-by-side calculation using the employee’s projected annual income, employee-side statutory deductions, special additional deductions, other relevant deductions, tax already withheld, and proposed bonus. Record the assumptions and the employee’s treatment instruction. If the employer has promised a net bonus or bears the employee’s IIT, calculate the required gross-up on the gross taxable amount rather than treating the promised net figure as the tax base.
5. Process withholding, filing, and payment
Show the bonus as a clear payroll item and preserve the calculation method. Under the PRC Individual Income Tax Law, the payer is generally the withholding agent. Tax withheld monthly or per payment must generally be remitted, with the withholding return, by the 15th day of the following month.
Use HROne’s China payroll tax guide for the broader employer workflow covering IIT withholding, statutory contributions, filing cycles, corrections, and payroll-tax evidence.
6. Reconcile the complete evidence chain
The approved bonus, payroll register, payslip, IIT filing, tax payment receipt, and employee bank payment should show the same gross bonus and withholding result. Investigate any mismatch before closing payroll. A correct formula is not enough if the filing and payment records tell a different story.
Common China bonus tax errors
- Treating every incentive as an annual one-time bonus. Quarterly, attendance, overtime, signing, retention, and project incentives do not qualify automatically.
- Applying a flat supplemental wage rate. China uses the IIT framework and the applicable bonus or comprehensive-income calculation, not a separate flat payroll percentage.
- Taxing only one-twelfth of the bonus. The one-twelfth figure selects the rate; the rate applies to the full qualifying bonus.
- Using the separate method more than once. The restriction follows the taxpayer across employers for the tax year.
- Ignoring tax residency. The resident annual one-time bonus formula should not be applied automatically to a non-resident employee.
- Comparing methods without full-year data. Missing deductions, other income, or prior withholding can reverse the apparent result.
- Overlooking a bracket cliff. A nominal increase can reduce the employee’s net bonus under the separate method.
- Leaving no audit trail. A payroll result without a policy, assessment, approval, employee instruction, calculation, filing receipt, and payment evidence is difficult to defend.
Bonus payroll records employers should retain
- employment contract, bonus policy, and any compensation amendment;
- annual company and employee performance criteria and assessment results;
- management approval showing the gross bonus and payment date;
- employee tax profile and any relevant residency review;
- confirmation of whether the separate method has already been used;
- side-by-side separate and combined tax calculations with assumptions;
- the method applied at withholding and the employee communication or instruction;
- payroll register, payslip, IIT filing, tax payment receipt, and bank payment evidence;
- correction or annual reconciliation support if the final treatment changes.
Retention periods and document formats should be aligned with the company’s wider payroll, tax, accounting, and employment-record policies. Access to personal tax data should be limited to authorized HR, payroll, finance, and service-provider personnel.
How HROne supports annual bonus payroll
HROne’s China payroll outsourcing service supports payroll setup, salary and bonus calculations, IIT withholding support, payroll reports, payslips, and statutory reporting coordination. Employers still need to provide accurate compensation terms, employee data, tax information, and timely approvals.
For a qualifying annual bonus, the practical starting point is a pre-payroll review of eligibility, residency, prior use, both tax methods, and the supporting file. Request a China payroll review before the next bonus cutoff.
Bonus Tax for EOR Employees
When an employee is legally employed through HROne’s China Employer of Record service, the employing entity administers the applicable China payroll and IIT withholding. The client should provide the approved bonus policy, gross amount, employee eligibility, payroll cut-off, previous annual-bonus treatment and any off-payroll compensation. The employee’s eligibility and choice of tax treatment must be checked against the applicable tax rules; neither the client nor the EOR should promise a particular tax saving without modelling the facts.
Frequently asked questions
Is China bonus tax charged at a flat supplemental rate?
No. China does not use a separate flat supplemental wage rate for ordinary employee bonuses. A qualifying annual one-time bonus paid to a resident individual may use the separate annual bonus method through December 31, 2027, or the taxpayer may include it in annual comprehensive income. Other bonus payments generally follow the applicable wage and salary withholding rules.
Which bonuses qualify for the annual one-time bonus method?
The payment should meet the official definition: a one-off bonus based on the employer’s annual economic results and a comprehensive assessment of the employee’s work over the year. A year-end label alone is not enough. Half-year, quarterly, overtime, attendance, signing, retention, and similar awards should not be assumed to qualify without a documented basis.
How is IIT calculated under the separate bonus method?
Divide the gross qualifying bonus by 12 to select the rate and quick deduction from the monthly-converted table. Then calculate IIT as: gross bonus × applicable rate − quick deduction. The rate applies to the full bonus, not only to one-twelfth of it.
Is separate taxation always better than combining the bonus with annual income?
No. Combining may be better when the employee has unused annual deductions or relatively low taxable comprehensive income. Separate taxation may be better in other income profiles, but bracket cliffs can change the result. Employers should model both methods using full-year data rather than relying on a general rule.
Can the separate method be used more than once, and can the employee change the treatment later?
The separate method may be used only once per taxpayer in a tax year, including where the employee has more than one employer. If the employer separately taxed the bonus at withholding, a resident individual can choose to include it in comprehensive income during annual reconciliation through the Individual Income Tax app.
