How to calculate personal income tax for individual contributions to provident fund?

The personal pension system is different from the basic pension insurance, which is mandated by the state, and the personal pension, which is voluntarily participated by individuals. Unlike enterprise annuities and occupational pensions, which are set up by employers and their employees and **** the same contributions, personal pensions are paid by individuals only. Overall, the personal pension system is a supplementary pension insurance system supported by government policies, participated voluntarily by individuals and operated on a market-oriented basis.

Personal pensions can be deducted before tax as a deduction when accounting for personal income tax. Currently, the frequently occurring deductions include deductions (60,000 yuan/year), special deductions (social security provident fund), and special additional deductions (children's education, medical treatment for major illnesses, mortgage and rent, etc.). According to the Notice on Personal Income Tax Policies Regarding Personal Pensions, personal pensions can be deducted before tax according to the actual amount of contributions, with a limit of 12,000 yuan per year.

For example: suppose an individual earns 300,000 yuan a year, pays 60,000 yuan in social security provident fund throughout the year, and pays personal pension according to the limit of 12,000 yuan a year. Then, before not contributing to the personal pension, its annual tax payable is: (300,000 - 60,000 - 60,000) × 20% - 16,920 yuan = 19,080 yuan; after the payment, the tax payable is (300,000 - 60,000 - 60,000 - 12,000) × 20% - 16,920 = 16,680 yuan, tax savings of 2,400 yuan during the year.

The above example of the amount of personal income is applicable to the 20% tax rate, as China's personal income tax system adopts a seven-tier over-accumulation tax rate for different income groups, the specific amount of tax savings is different. For people with different tax rates, the higher the income group, the higher the tax rate used, the higher the amount of tax savings on personal pensions. For example, those with taxable incomes of $960,000 or more will see the highest tax savings, with $5,400 saved during the year. As another example, for those earning between $60,000 and $96,000 a year, the 3% tax rate applies to personal pensions whether they are contributed to or not, making the tax-advantaged policy unattractive without taking into account the time value of money. And the annual income of less than 60,000 yuan of people would have been exempt from personal income tax, this part of the income could have been exempt from tax in the personal pension contributions and then withdrawals instead need to pay 3% personal tax.