HR says the salary is 10,000 a month, but when I ran it through a calculator the monthly deduction was not a fixed number: 150 at the start of the year, more and more towards December. That is not an error. It comes from three things stacked together: the 5,000 yuan monthly standard deduction, seven progressive tax brackets, and withholding calculated on a cumulative basis from January to the current month.
Separate salary from taxable income first
Tax is not charged on the whole salary. Each month 5,000 yuan comes off first as the standard deduction, which is 60,000 for the year, and only what remains is the taxable base. While I am here, let me correct a very widespread label: this 5,000 is often called the tax threshold, but its legal name is the basic standard deduction, and its nature is an exemption amount. The two are not the same. A threshold means nothing is taxed below the line and the whole amount is taxed once you cross it, while an exemption amount only removes that slice, with everything above it entering the brackets as usual.
The assumptions need to be stated plainly: the examples below deduct only this 5,000, with no social insurance, housing fund or additional special deductions, so the tax shown is for that one scenario and cannot be compared with a payslip directly. And "the examples ignore social insurance" does not mean "you take home more". The employee share of social insurance and the housing fund comes out of gross pay before it reaches your bank account (the housing fund part goes into your own account), and at the same time it lowers the taxable base and shrinks the tax. One push up, one push down: actual cash in hand is usually lower than these figures, and the effective rate is usually lower than the "tax burden" column below.
The seven brackets stack slice by slice
The phrase "the part above 36,000 yuan is taxed at 10%" is often read as the entire income jumping to 10%. In fact it is segmented: the portion up to 36,000 stays at 3%, and only the portion that falls into the next bracket pays 10%. On a monthly salary of 10,000 the annual base is 60,000, of which 36,000 at 3% is 1,080 and the remaining 24,000 at 10% is 2,400, for a total of 3,480.
| Annual taxable income ceiling | Rate | Quick deduction |
|---|---|---|
| 36,000 | 3% | 0 |
| 144,000 | 10% | 2,520 |
| 300,000 | 20% | 16,920 |
| 420,000 | 25% | 31,920 |
| 660,000 | 30% | 52,920 |
| 960,000 | 35% | 85,920 |
| Above 960,000 | 45% | 181,920 |
Where the quick deduction comes from
With the table it is one multiplication: 60,000 × 10% minus 2,520 equals 3,480, the same as adding the slices. That 2,520 is not a number to memorise; each bracket equals the previous bracket's quick deduction plus the previous ceiling times the difference between the two rates: 36,000 × (10% − 3%) gives 2,520, then 144,000 × (20% − 10%) brings it to 16,920, and so on up to 181,920 in the last bracket. I sampled the slice-by-slice sum against "base times rate minus quick deduction" from 1 yuan to 1.2 million and the largest deviation was 0.000000 yuan.
A few salary levels side by side
- Monthly salary 8,000: annual base 36,000, tax 1,080.00, average 90.00 a month, 1.125% of annual income.
- Monthly salary 10,000: base 60,000, tax 3,480.00, average 290.00 a month, effective rate 2.90%.
- Monthly salary 15,000: base 120,000, tax 9,480.00, average 790.00 a month, effective rate 5.27%.
- Monthly salary 17,000: base 144,000, tax 11,880.00, average 990.00 a month, effective rate 5.82%.
- Monthly salary 20,000: base 180,000, tax 19,080.00, average 1,590.00 a month, effective rate 7.95%.
- Monthly salary 30,000: base 300,000, tax 43,080.00, average 3,590.00 a month, effective rate 11.97%.
In the first row 1,080 ÷ 96,000 is exactly 1.125%, and rounding it to 1.13% would lose information, so I left the original value; the other rows give the effective rate to two decimals. The first row sits exactly on the 36,000 boundary, so not a cent enters the 10% bracket all year. Going from 8,000 to 10,000 a month is only 2,000 more, yet the tax jumps from 1,080.00 to 3,480.00, because the 24,000 above the boundary starts paying 10%. The fourth row works the same way: at 17,000 a month the base is exactly the second ceiling of 144,000, so the 20% slice has not started; add another thousand and the base becomes 156,000, the 12,000 above it is taxed at 20%, and the tax rises from 11,880.00 to 14,280.00, so 12,000 more salary brings 2,400 more tax and the overall rate only climbs from 5.82% to 6.61%.
Beyond the 5,000 there are several more deductions, in a fixed order
Article 6 of the Individual Income Tax Law sets the calculation for resident individuals: from a tax year's income, deduct in order the 60,000 basic standard deduction, special deductions, additional special deductions and other deductions determined by law, and what remains is taxable income. The order is not yours to rearrange: 60,000 first, then social insurance and housing fund contributions, which the law calls special deductions, and only then the additional special deductions. So the claim that "social insurance comes off before the 5,000" has it backwards. Cumulative withholding at payday follows the same order, with every item accumulated from January to the current month.
There are seven additional special deductions: children's education, care for infants under three, continuing education, major medical expenses, housing loan interest, housing rent and support for elderly parents. Six of them can be deducted monthly at payday; major medical expenses cannot, because the amount only becomes knowable once the year's out-of-pocket spending within the medical insurance catalogue has accumulated. It can only be claimed in the annual reconciliation held between March and June of the following year, and you will not find it anywhere on a year of payslips. Housing loan interest and housing rent are mutually exclusive within the same year. All of these deductions work by lowering the base, and the seven brackets are applied to the lowered base, so the same salary can land in different brackets depending on what was declared. That is also why the effective rates in the column above run higher than most people's sense of their own burden.
Why the deduction grows towards the end of the year
Cumulative withholding adds up taxable income from January to the current month and looks it up in the bracket table, the very table above, since the withholding table for wages uses the same bracket widths, rates and quick deductions as the annual table. It works out the total due so far, then subtracts what has already been withheld. On a 10,000 salary the monthly base is 5,000; for the first seven months the cumulative total stays at 35,000 in the 3% bracket, so 150.00 is withheld each month. In the eighth month the cumulative total of 40,000 crosses into the 10% bracket and 430.00 is withheld; after that it is 500.00 a month. Under the "only 5,000 deducted" assumption, what remains each month is 9,850.00, 9,570.00 and 9,500.00, but that does not match a payslip, because social insurance and the housing fund have not come off yet. The annual total is still 3,480.00, matching the annual calculation. Do not divide the 500.00 withheld in December by the monthly salary and call the 5.00% your rate; that is one month's state. The 2.90% you get from 3,480.00 over the annual 120,000 is the real figure.
To find out which month your own withholding crossed a bracket, I put salary, month and known deductions into the Income Tax Calculator and have it lay out the cumulative withholding month by month. If there is a mortgage, work out the repayment method first with the Mortgage Calculator so the monthly payment can go into the cash flow.
Q: With the same salary, why do two people take home different amounts?
The difference usually lies in three places: the contribution base and rates for social insurance and the housing fund, how many additional special deductions were declared, and the month someone joined, which leaves cumulative withholding at a different point in the brackets. None of the three is in the examples here.
Q: Why is so much more withheld in the second half after changing jobs mid-year?
Each employer withholds only on cumulative income earned at that employer, with no merging of the previous job. The two incomes are combined and recalculated at the annual reconciliation, where any difference is paid or refunded, so feeling over-withheld mid-year does not mean you actually overpaid.
Q: Near a bracket boundary, can earning one more yuan leave me worse off?
No. A progressive rate applies the higher rate only to the part above the boundary, so tax rises monotonically with income and there is no inversion where earning one more yuan leaves you with less. That is exactly what lets the quick deduction replace slice-by-slice addition with one multiplication.