Meaning
Tax administrative circular issued by the Ministry of Finance to regulate the preferential treatment of annual bonuses and severance pay. Individual income tax notice 164 allows for a separate calculation of tax on one-time annual bonuses to reduce the overall tax burden on the recipient.
Preferential Calculation
Methods for computing tax on bonuses allow the payment to be treated as a distinct unit. These rules under individual income tax notice 164 prevent tax spikes caused by combining bonuses with regular monthly income.
Tax Optimization
Bonuses are not added to the regular monthly salary for the purpose of determining the tax bracket. Instead, the total bonus amount is divided by twelve to find a representative monthly rate, which then dictates the applicable tax rate and quick deduction factor. This individual income tax notice 164 policy was extended to provide continuity for taxpayers.
The policy reduces the tax burden on middle-income earners who receive a large portion of their compensation as a year-end payment.
Circular Validity
Regulations within this notice have been updated through subsequent announcements to extend the sunset clauses. Employers must monitor the current expiration dates to ensure payroll software remains compliant with the latest tax formulas.
