Employees must pay personal income tax from salary income and some other income, if any, due to overpayment by the company.

This article was consulted by Lawyer Nguyen Quang Trung

Legal grounds:

• Circular No. 111/2013/TT-BTC;
• Official Dispatch No. 3257/TCT-TNCN dated August 23, 2018 of the General Department of Taxation;
• Official Dispatch No. 51/TCT-DNNCN dated January 7, 2021 of the General Department of Taxation.

We receive the following questions:

My company has just laid off many workers due to shrinking production and business. The company is willing to provide workers with additional money to return hometown or find new jobs. This is an additional allowance depending on the length of time working at the company. So do workers have to pay personal income tax for this additional amount?

Pursuant to Points a and b.6, Clause 2, Article 2 of Circular No. 111/2013/TT-BTC as follows:

Article 2. Taxable income

2. Income from salaries and wages

Income from salaries and wages is the income the employee receives from the employer, including:

a) Salaries, wages and amounts of salary and wages in monetary or non-monetary forms.

b) Allowances and subsidies, except for the following allowances and subsidies:

…

b.6) Unexpected hardship allowance, allowance for labor accidents, occupational diseases, one-time allowance for giving birth or adopting a child, maternity benefits, convalescence and recovery allowances post-maternity health benefits, benefits due to loss of working capacity, one-time retirement benefits, monthly survivor benefits, severance benefits, job loss benefits, unemployment benefits and other benefits according to regulations provisions of the Labor Code and the Social Insurance Law.

According to the above regulations, it is necessary to note the distinction between benefits for employees and the corresponding personal income tax as follows:

Benefits according to labor and social insurance laws such as: labor accident benefits, maternity benefits, severance benefits, etc. These benefits to employees are not subject to personal income tax;

Other benefits that businesses pay to employees in addition to the benefits mentioned above (This is an amount that businesses voluntarily provide additional support to workers without being required). These benefits are subject to personal income tax.

Pursuant to Point i, Clause 1, Article 25 of Circular No. 111/2013/TT-BTC as follows:

Article 25. Tax deduction and tax deduction documents

1. Tax deduction

i. Tax deduction for some other cases

Organizations and individuals that pay wages, remunerations, and other payments to resident individuals who do not sign a labor contract (according to the instructions in Points c, d, Clause 2, Article 2 of this Circular) or sign a labor contract of less than three (03) months with a total income payment of two million (2,000,000) VND/time or more must have tax deducted at the rate of 10% of income before paying to the individual.

According to the above regulations, the additional benefits paid by businesses to employees, in addition to benefits according to labor law and social insurance, is subject to a personal income tax rate of 10% for income from 2,000,000 VND/time.

Employees can make a commitment according to the prescribed form for businesses to use as a basis for temporarily not deducting personal income tax if eligible.

Official Dispatch No. 3257/TCT-TNCN dated August 23, 2018 of the General Department of Taxation also has the following instructions:

Severance pay for employees who quit their jobs in accordance with the law is not included in taxable income from the employee’s salary or wages.

For employee income that is outside the provisions of the Labor Law, the Social Insurance Law and the labor contract between the employee and the paying agency after the termination of the labor contract. If this amount is VND2,000,000 or more, the Company must deduct personal income tax at the rate of 10% of the total income paid.

Official Dispatch No. 51/TCT-DNNCN dated January 7, 2021 of the General Department of Taxation also has the following instructions:

In case the Company pays income from salaries and wages of VND2,000,000 or more per time to the employee at the time after the labor contract has been terminated, the Company must deduct employees’ personal income tax at the rate of 10% of total taxable income from salaries and wages… In case the employee only has one income subject to tax deduction according to at the rate mentioned above, but the estimated total taxable income of the employee after deducting family circumstances is not at the level to pay tax, the employee make a commitment (according to the form issued with the guiding document on tax administration) sent to the Company so that the Company can use it as a temporary basis for not deducting personal income tax.