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Individual Income Tax Special Additional Deductions: Childcare Expenses for Under-three-year-old Infants and Toddlers

On 28 March 2022, the State Council published the Notice on the Establishment of Individual Income Tax (IIT) Special Additional Deduction for Under-three-year-old Infants and Toddlers’ Childcare. The new policy specifies that childcare expenses for children under three years old can be deducted from one’s IIT taxable income at RMB 1,000 per month per child from 1 January 2022 onwards.

Regarding the deduction method, parents and/or guardians can choose to split the deduction (50% each) or one parent/guardian can opt for a 100% deduction.

According to the State Taxation Administration, starting from 29 March 2022, eligible taxpayers can apply for the above special additional deduction via the IIT mobile app. Alternatively, they can choose to submit the relevant documents to their employers who can apply on their behalf.

Based on the corresponding provisions of the Individual Income Tax Law, eligible taxpayers can take advantage of the deductions on a monthly basis when their salary is paid, or they can enjoy the benefits all at once in the following year’s remittance. Furthermore, accumulated deductions from previous months of the current year can be supplemented in the form of a one-time deduction to the subsequent salary payment.

There are currently seven categories of special additional deductions for IIT relating to education, healthcare, housing and support for the elderly. Similar to the six pre-existing categories, the newest category also utilizes the service management mode of “enjoyment after declaration; information retention for inspection.” As long as eligible taxpayers have provided the name on and the document number of their children’s identity document, they will not have to submit supporting documentation to the tax authorities separately. However, they may be asked to produce their children’s birth certificates and other documents upon inspection.

Taxpayers who have not obtained a birth certificate and ID number for their children can select the “other personal certificates” option and fill in the relevant information in the remarks section; this will not adversely affect their application for the special additional deduction. Other identity documents can also be used, such as Chinese passports, foreign passports, Mainland travel permits for Hong Kong and Macao residents as well as Mainland travel permits for Taiwan residents.

The new special additional deduction can be summarized as follows:

  1. Taxpayers’ childcare expenses for infants and toddlers under three years old shall be deducted according to the standard quota of RMB 1,000 per month for each child.
  2. Parents may choose to deduct 100% of the standard deduction from one parent/guardian or 50% of the standard deduction from both parents and/or guardians. The method of deduction cannot be changed within one tax year.
  3. Safeguard measures and other matters involved in the above special additional deduction shall be implemented with reference to the relevant provisions of Interim Measures for Special Additional Deduction of Individual Income Tax.
  4. According to the relevant provisions of the Individual Income Tax Law, the special additional deductions can be made in the reporting month or supplemented to the following month’s salary. In addition, those who have not worked for an employer may also apply for a supplementary deduction at the time of settlement and payment in the following year. For example, if a taxpayer’s child is born in October 2021, the taxpayer will be eligible for the special additional deduction from 1 January 2022. Taxpayers who provide their employers with the relevant documentation can apply for the special additional deduction of RMB 4,000 accumulated from January to April when their salary is paid in April.
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