China Payroll Calculation Guide: Social Insurance, Housing Fund & Individual Income Tax (2025 Edition)

Managing payroll in China requires understanding three core components: Social Insurance & Housing Fund contributions, Individual Income Tax (IIT) withholding, and the unique Special Additional Deductions system. This guide explains 2025 policies and calculation logic:

1. Components of Employee Compensation

Typical Chinese employee monthly salary (pre-tax) includes:

· Fixed salary: Base pay + Position allowance

· Variable pay: Performance bonuses, Overtime pay, Annual bonus

· Statutory deductions: Employee’s social insurance + Housing fund + IIT
*Employers contribute 32%-35% of salary for social insurance/housing fund. This guide focuses on net pay calculation.*

Key Formula: Net Salary = Gross Salary - Social Insurance (Employee) - Housing Fund (Employee) - IIT

2. Social Insurance & Housing Fund Deductions ("Three Social Insurances + One Fund")

While social insurance includes five schemes, employees only contribute to three (Pension, Medical, Unemployment) plus Housing Fund:

Item	Contribution Base Range	Employee Rate	Key Features
Pension Insurance	60%-300% of local avg. social wage	8%	Nationally pooled, retirement benefit
Medical Insurance	Same as Pension base	2%	Includes personal medical account
Unemployment	Same as Pension base	0.5%-1%	Claimable during involuntary unemployment
Housing Fund	60%-300% of local avg. wage	5%-12%	Withdrawable for housing purposes

Operational Notes:

1. Contribution bases reset annually (Most Chinese cities make adjustments in June or July) based on prior year’s avg. monthly salary

2. In Beijing etc. cities, enterprises are supported to directly retrieve the social insurance base and synchronize the housing provident fund data.

3. Contributions exceeding base caps/rates are taxable as income

3. Individual Income Tax (IIT) Calculation

Four-Step Calculation Process:

1. Determine annual taxable income: Salary + Bonuses + Allowances

2. Deduct allowable amounts:

o Basic exemption: ¥60,000/year (¥5,000/month, it is the threshold for individual income tax.)

o Social insurance/housing fund: Actual employee contributions

o Special Additional Deductions: 7 categories (see below table)

o Other deductions: Private pension (≤¥12,000/year), Commercial health insurance(≤¥2,400/year)

(Individuals can voluntarily choose whether to make a purchase or not. They are required to provide the purchase vouchers for pre-tax deductions.)

3. Apply progressive tax rates

4. Annual reconciliation: Final settlement March-June next year

▶ Special Additional Deductions (2025 Standards)

Category	Monthly Deduction	Conditions & Limits
Children’s Education	¥2,000 per child	Full-time education (age 3 to Ph.D)
Infant Care (0-3 yrs)	¥2,000 per child	Claimable by one parent or shared
Elderly Support	¥3,000 (only child) ¥1,500 max (non-only)	Supporting ≥60-year-old parents/grandparents
Home Loan Interest	¥1,000	First-home loan, max 240 months
Housing Rent	¥800-¥1,500	Tiered by city size; mutually exclusive with home loan
Continuing Education	¥400/month or ¥3,600/year	Degree programs/professional certificates
Serious Illness Medical	Actual cost (≤¥80,000/year)	Out-of-pocket >¥15,000 post-reimbursement

▶ IIT Tax Brackets (2025 Comprehensive Income)

Annual Taxable Income	Rate	Quick Deduction
≤¥36,000	3%	0
¥36,001-¥144,000	10%	¥2,520
¥144,001-¥300,000	20%	¥16,920
¥300,001-¥420,000	25%	¥31,920
¥420,001-¥660,000	30%	¥52,920
¥660,001-¥960,000	35%	¥85,920
>¥960,000	45%	¥181,920

Note: Cumulative Withholding Method
Monthly IIT = (Cumulative income - Cumulative deductions) × Rate - Quick Deduction - Tax already paid

4. Calculation Cases

Case 1: Executive (¥300k/year, mortgage + 1 child + supporting elderly as only child)

· Annual income: ¥300,000

· Social insurance/housing fund: ¥36,000

· Special deductions:

o Children’s education: ¥24,000

o Mortgage interest: ¥12,000

o Elderly support: ¥36,000

· Taxable income: 300,000 - 60,000 - 36,000 - 24,000 - 12,000 - 36,000 = ¥132,000

· Annual IIT: 132,000 × 10% - 2,520 = ¥10,680 (3.56% effective rate)

Case 2: Employee (¥10k/month, 1 child + renting)

· Monthly income: ¥10,000

· Social insurance/housing fund: ¥1,200

· Special deductions: ¥2,000 (child) + ¥1,500 (rent) = ¥3,500

· Monthly taxable income: 10,000 - 5,000 - 1,200 - 3,500 = ¥300

· Monthly IIT: 300 × 3% = ¥9

Case 3: Employee (¥180k/year, no special deductions)

· Annual income: ¥180,000

· Social insurance/housing fund: ¥36,000

· Taxable income: 180,000 - 60,000 - 36,000 = ¥84,000

· Annual IIT: 84,000 × 10% - 2,520 = ¥5,880

5. Key Compliance Notes for Employers

1. Standard working days: 21.75 days/month

o ≠ 20.67 avg. workdays (excludes paid statutory holidays)

o Daily wage = Monthly salary ÷ 21.75 (for overtime/absence calculations)

2. Mandatory reporting:

o Verify employees’ Special Additional Deductions via "Personal Income Tax" APP

o Late filings incur 0.05% daily penalty + credit penalties

3. Expatriate differences:

o Housing subsidies/language training fees may be tax-exempt

o Children’s education expenses deductible without invoices

Based on China’s Individual Income Tax Law, Housing Fund Regulations, and 2025 MOHRSS updates. Last revised: 19 June 2025. Recommended to use local HR systems (e.g., “iHR” from Lethic Group, Talent Spot's sister - brands) for payroll automated calculations.