Normal Tax Calculation

The system uses the accumulative withholding method to calculate the normal tax (or individual income tax) for employees based on year-to-date (YTD) amounts. Using this method, the tax payable for the current month is calculated as follows:

Taxable income YTD = Income YTD - Tax exemption amount YTD - Deductions YTD - Special additional deductions YTD - Other nontaxable deductions YTD

Current tax payable = Taxable income YTD x Tax rate - Quick deduction amount - Tax reduction amount YTD - Tax withhold as of last run

Note:

The system delivers a number of YTD accumulators for use in the calculation of normal tax using the accumulative withholding method. In these accumulators, variable CN VR TAX REGNO (Tax Registration Number) is set as the default user key. With that, any change in tax registration number resets the accumulator value. Oracle recommends that you review these accumulators and make sure that this reset behavior aligns with your organization’s requirement. If you decide not to use Tax Registration Number as the default user key, it will be your responsibility to update and maintain these accumulators.

Delivered accumulators include: CN AC PHF EE YTD, CN AC REDT AMT YTD, CN AC SI EE YTD, CN AC SP DED YTD, CN AC TAX PHF YTD, CN AC UNUSE RD YTD, CONT EDU FEE YTD, EDU FEE YTD, ELDERLY SUPP YTD, HOUSE LN INT YTD, HOUSING RENT YTD, NORM TAX YTD, TAX EXEMPTION YTD, and TAXABLE NORMAL YTD.

SPECIAL ADDITIONAL DEDUCTIONS

Employees are entitled to these special additional deductions:

  • Children’s Education Fee

  • Continuing Education Fee

  • Housing Loan Interest

  • Housing Rentals

  • Expense for Elderlies Support

The accumulator CN AC SP DED YTD includes all these special additional deductions (regular and retro) as members for ease of calculation.

It is the employees’ responsibility to report their special additional deductions to the China Tax Bureau. The information is then collected by the employers for salary and tax calculation. If these deductions are not reported in time to be processed for a tax year, you can apply for a supplementary deduction to the employer in the remaining month of the year. Special additional deductions may also be deducted between March 1st and June 30th of the following year when you submit the payment declaration to the tax authority.

Note:

The accumulative tax withholding method is the default method used for normal tax calculation. The system provides an option for you to switch back to the previous method used (the MTD calculation method) if the change is deemed necessary. However, before you consider switching, keep in mind that the system keeps the previous method mainly for tax calculation reversal purposes only, and it is not validated against the new accumulative tax withholding method.

If you decide to switch to the MTD calculation method, set the value of variable CN VR ACC METHOD to N either by using the supporting element override, or by changing the variable value directly. Oracle recommends that you do not make this change in the middle of the year to avoid unexpected behavior.

This diagram illustrates the flow of normal tax calculation:

This diagram illustrates the flow of normal tax calculation.

Normal tax calculation

The NORM TAX deduction invokes the formula CN FM CALC NMYR TX, which derives normal tax from calculated normal salary. The formula references bracket CN BR TX EXEMPTION to load the tax exemption amount according to the employee type CN VR EE TYPE. It also calls formula CN FM CALC YR TAX to calculate tax.

Note:

If the variable CN VR BONUS TX IND is set to Y, the system calculates tax for both annual bonus and normal salary together using the formula CN FM CALC NMYR TX.

See Also Annual Bonus Tax Calculation.

The formula CN FM CALC NMYR TX:

  1. Deducts year-to-date monthly tax exemption TAX EXEMPTION YTD from year-to-date monthly taxable income TAXABLE NORMAL YTD to get taxable income.

  2. Calls formula CN FM TAX PHF YTD to calculate year-to-date nontaxable PHF/SI contribution deduction amount and subtracts it from the taxable income, if applicable.

  3. Subtracts year-to-date special additional deduction amounts CN AC SP DED YTD from the taxable income, if applicable.

  4. Calls formula CN FM CALC YR TAX, which:

    1. References the bracket CN BR TAX RATE YR to obtain the tax rate and quick calculation deduction to derive the withholding amount for the payee's normal salary for one pay period in the current financial year.

    2. Subtracts the reduction from the tax withholding amount if the payee is eligible for disability reduction. If a payee override exists, the assumption is that it overrides an amount; otherwise, the formula uses the percent value retrieved from the CN BR TX EXEMPTION bracket.

      Therefore, if an override exists, the tax withheld equals the tax amount from step 4a minus the override amount. If the tax withheld is less than zero, the formula sets the tax to zero. If no override exists, the formula subtracts the reduction percent from the tax withheld from step 4a.

  5. Deducts any normal tax already paid year-to-date.

  6. If TAXABLE NORMAL YTD is less than tax exemption and normal tax exists from earlier segments in the period, makes NORM TAX_MTDA negative to reverse calculated amount. Otherwise, sets NORM TAX_MTDA to 0.