When Taiwan companies declare employees’ annual salary income from the previous year, including various income and exemption certificates, if an employee has participated in voluntary pension contributions during that year, the amount of the contribution should be deducted in full of the total salary income to avoid overpaying taxes.
According to Taiwan’s “Enforcement Rules of the Labor Pension Act,” the amount of voluntary pension contributions within 6% of the monthly salary is not included in the taxable income for the year of contribution. Therefore, when Taiwan companies file the “Withholding and Non-withholding Tax”, they should correctly report the amount of voluntary contributions made by the employee in the “Amount of Voluntary Contributions under the Labor Pension Act” field, and the total payment amount must deduct the voluntary contribution amount in full.
For example:
In 2023, the employee's total monthly salary is NT$43,000 (the salary classified for contribution purposes as NT$43,900), with the year-end bonus is 2 months, and the total of annual salary income would be NT$602,000 (NT$43,000 x 14 months). If the employee voluntarily contributes 6% to the pension each month, then the 2023 withholding certificate's “Amount of Voluntary Contributions under the Labor Pension Act" field should be filled with NT$31,608 (NT$43,900 x 6% x 12 months), and the total payment amount should be filled as NT$573,920 (NT$602,000 - NT$31,608).
The benefit of employees voluntarily contributing pensions is that it can be fully deducted from the total annual personal income, not included in the personal income tax calculation. When withdrawing labor pension funds, it will be included in the income declaration, serving as a function to defer tax liabilities. However, it is important to note that the tax-exempt limit for voluntary labor pension contributions is NT$108,000. Moreover, when withdrawing the pension fund, although this retirement income must be included in personal income taxation, the income bracket applicable after retirement is usually lower than that during employment, potentially creating tax savings.
Disclaimer
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