The annual bonus in China is a big deal. It is common to see companies pay one extra month’s salary, or even more based on performances at the end of the year.
For this reason, great importance is attached to the year-end bonus by both employees and employers.
It is also important to consider the taxation about the annual bonus in China, so to avoid problems with wrong calculations and fines if you are not compliant with the law.
In this article, we provide a guide to understanding more about the year-end bonus in China and things that employers have to consider when calculating taxes for it.
Tax on the one-time annual bonus in China
The one-time annual bonus in China is considered as a monthly salary for an additional month and the tax applied on it shall be paid by the tax withholding agent. In a fiscal tax year, this method of taxation can only be applied once for each taxpayer. If an employee is entitled to receive any additional bonus such as attendance award, overtime bonus, improvement award, it shall be combined with his/her salary income in the same month for payment of individual income tax in accordance with the tax laws.
Methods of calculating the tax on the gross one-time annual bonus
The annual one-time bonus obtained by a taxpayer shall be considered as a separate one-month salary with standard salary taxes applicable.
Formula: Tax payable on year-end bonus = Taxable annual bonus amount x Applicable tax rate – Quick deduction.
For example: The applicable tax rate for a RMB 120,000 bonus is 10 percent (RMB 120,000 / 12 months = RMB 10,000).
Following are the methods of calculating the tax on the gross one-time annual bonus:
- By dividing 12 months the one-time annual bonus received by the employee in that specific month, and determining the applicable tax rate and the quick deduction as per the quotient.
- Calculating the tax payable on the employee’s one-time annual bonus obtained in that specific month as per the applicable tax rate and the quick deduction determined under item 1, with the formula of calculation as follows:
- If that month’s salary is equal to or higher than the deductible income as stipulated by the government, then: taxes payable = one-time annual bonus x applicable tax rate – quick deductions.
- If that month’s salary is lower than the deductible income as stipulated by the government, then: taxes payable = (one-time annual bonus – the balance between that month’s salary and the deductible income) x applicable tax rate – quick deductions.
The net one-time annual bonus
The net annual bonus can be converted into a gross annual bonus and then be taxed accordingly.
The method for converting the net annual bonus to gross annual bonus is as follows:
- Dividing the net annual bonus by 12, apply the relevant applicable tax rate A and the quick deduction A.
- Gross annual bonus = (net annual bonus quick deduction A) divided by (1-applicable tax rate A).
- Based on the result of dividing the gross annual bonus by 12, apply the relevant tax rate B and the quick deduction B.
- Taxes payable = gross annual bonus x applicable tax rate B – quick deduction B.
1. Changes to the calculation for IIT – 2025
Background: Policy Extensions for annual bonus
- Original phase‐out
Under the PRC Individual Income Tax (IIT) reforms of 2019, the preferential method for calculating IIT on the annual bonus was slated to end, so that bonuses would be combined (“aggregated”) with regular monthly wages and taxed as part of comprehensive income. - Extension until end of 2023
In late 2021, China’s Ministry of Finance (MOF) and State Taxation Administration (STA) extended the preferential separate calculation method for the one‐time annual bonus through December 31, 2023. - Further extension until end of 2027
In December 2022, the MOF and STA announced a further extension of the same method through December 31, 2027. Therefore, from 2023 to 2027 (inclusive), employers and employees may continue using the separate calculation method for the annual bonus. As a result, in 2025, you can still use the separate calculation approach outlined below.
2. How the “Separate Calculation” Method Works
When applying the preferential treatment, the annual bonus is not aggregated with your monthly wage/salary for tax purposes. Instead, it is taxed on its own, using this step‐by‐step procedure:
- Divide by 12
Take the one‐time annual bonus amount and divide it by 12 to get a notional “monthly average.” - Find the tax bracket & quick deduction
Use China’s monthly comprehensive income tax rate table (the same table normally used for monthly wages) to determine:- The applicable tax rate corresponding to that “monthly average.”
- The quick deduction for that bracket.
- Calculate IIT
Once you know the applicable tax rate and quick deduction for that bracket, the tax on the entire bonus is: IIT on bonus=(Annual Bonus)×(Tax Rate) − (Quick Deduction)\text{IIT on bonus} = (\text{Annual Bonus}) \times (\text{Tax Rate}) \;-\; (\text{Quick Deduction})IIT on bonus=(Annual Bonus)×(Tax Rate)−(Quick Deduction) Importantly, you do not multiply the quick deduction by 12—you simply subtract the bracket’s monthly quick deduction once.
A. Monthly Tax Rate Table for Reference
Although there are multiple versions in circulation, the common 7‐bracket monthly table (for wages and salary) is usually as follows (note that the “Taxable Income” here refers to monthly taxable income after standard deductions and social insurance, etc.):
| Monthly Taxable Income (CNY) | Tax Rate | Quick Deduction (CNY) |
|---|---|---|
| 0 – 3,000 | 3% | 0 |
| 3,000 – 12,000 | 10% | 210 |
| 12,000 – 25,000 | 20% | 1,410 |
| 25,000 – 35,000 | 25% | 2,660 |
| 35,000 – 55,000 | 30% | 4,410 |
| 55,000 – 80,000 | 35% | 7,160 |
| Over 80,000 | 45% | 15,160 |
B. Example Calculation
Suppose an individual in 2025 has an annual bonus of CNY 120,000:
- Divide by 12
120,000÷12=10,000120{,}000 \div 12 = 10{,}000120,000÷12=10,000
This “monthly average” is CNY 10,000. - Locate the bracket
CNY 10,000 falls in the 3,000 – 12,000 monthly bracket, which has:- Tax rate = 10%
- Quick deduction = 210 CNY
- Compute IIT IIT=120,000×10% − 210=12,000 − 210=11,790 CNY\text{IIT} = 120{,}000 \times 10\% \;-\; 210 = 12{,}000 \;-\; 210 = 11{,}790\text{ CNY}IIT=120,000×10%−210=12,000−210=11,790 CNY
Hence, the tax on the bonus is CNY 11,790 and the employee’s net bonus is 120,000−11,790=108,210120{,}000 – 11{,}790 = 108{,}210120,000−11,790=108,210 CNY.
3. Summary for 2025
- Separate calculation method is still allowed through the end of 2027.
- You will calculate your 2025 one‐time bonus by dividing by 12, finding the matching monthly tax bracket, and applying the bracket’s tax rate and quick deduction.
- There is no requirement in 2025 to aggregate the annual bonus into your normal monthly salary for taxation—unless you opt to. (Some taxpayers with lower overall income might benefit from aggregating, but in many cases the separate method is simpler and yields a lower tax burden.)
Unless further extended again beyond 2027, the one‐time bonus after January 1, 2028 would (under current rules) need to be combined with your regular wages and taxed as part of comprehensive income.he tax payment method of the year-end bonus will change in 2022. In short, before the end of the year 2021, there are two tax calculation methods for individual tax payments, namely, separate tax calculation and consolidated tax calculation. By next year, there will be only one way of consolidated taxation.
What does it mean?
We will show you the changes with two examples:
- For people whose salary is higher than the year-end bonus:
Take an individual with an annual taxable income of 150,000 yuan (tax base after pre-tax income deducting insurances and one fund, 60,000 yuan threshold, special additional deduction, etc.). Assuming that his year-end bonus is 30,000 yuan, if the tax is calculated in a consolidated way (that is, the tax method after this year), the tax rate of 20% is applicable to the 30,000 yuan, and the individual income tax is 6,000 yuan. That is, the final year-end bonus is 24,000 yuan.
In the same situation for the above individuals, assuming that the tax is calculated separately (the tax method can still be selected this year), the 3% tax rate is applicable to the 30,000 yuan year-end bonus, the individual income tax is 900 yuan, and the final year-end bonus is 29,100 yuan.
Therefore, in the above cases, individuals with an annual taxable income of 150,000 yuan can pay 5,100 yuan less personal tax this year than from 2022.
- For those whose year-end bonus is higher than their salary:
Let’s say an employee of company A, in 2020, after deducting insurances and one fund and exemption, has a taxable income of 30,000 yuan and a year-end bonus of 270,000 yuan. If the tax is calculated separately, the employee needs to pay a total of 52,590 yuan of tax and 900 yuan of salary tax, totaling 53,490 yuan.
If the tax is calculated on a consolidated basis, a total of 43,080 yuan of individual income tax shall be paid.
For the employee, the annual income difference between the two tax methods is 10,410 yuan.
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