Accurate personal income tax accounting is a key task, requiring a deep understanding of current legal documents (Personal Income Tax Law, Decree 65/2013/ND-CP, Circular 200/2014/TT-BTC, Circular 133/2016/TT-BTC, and Circular 80/2021/TT-BTC on tax management). Personal Income Tax Since taxes account for a large proportion of the budget, proper deduction, declaration, and payment are crucial. Errors can lead to administrative penalties.Decree 125/2020/ND-CP) and affects the rights of workers.
Personal income tax accounting is closely linked to accounts 334 and 3335, reflecting the relationship between the business, the employee, and the tax authority. When the accounting process is properly established and recorded at the right time, businesses will have better control over cash flow, minimize errors, and be proactive in tax settlement. If you need more comprehensive guidance on situations such as paying taxes on behalf of others or handling discrepancies after tax settlement, please continue reading the in-depth article below to fully understand the personal income tax accounting system.
Overview of personal income tax and the role of personal income tax accounting.
Personal Income Tax (PIT) is a direct tax levied on the income of individuals, including both resident and non-resident individuals, as stipulated by current law. Withholding PIT at source is a mandatory responsibility of organizations and businesses paying income, according to Clause 1, Article 25 of Circular 111/2013/TT-BTC. This process requires absolute accuracy in calculating and accounting for PIT.
Concept and subjects liable to personal income tax.
Taxable income This includes various items, from salaries, wages, allowances, subsidies, to income from business, capital transfers, royalties, lottery winnings, etc.
Accountants need to clearly identify which income is subject to tax and the applicable tax rates. The taxpayer is the individual with the income, while the business is responsible for deducting and accounting for the personal income tax payable.
The importance of standardized personal income tax accounting.
Proper personal income tax accounting is not only about legal compliance but also an effective financial management tool. Correct accounting helps businesses accurately reflect their liabilities to the state budget (Account 3335) and the actual salaries received by employees (Account 334). A solid personal income tax accounting process ensures smooth year-end tax settlements, avoiding penalties for late declarations or payments as stipulated by the Government.
Legal basis and accounting principles for personal income tax
The accounting system for businesses in Vietnam is currently guided primarily by two main circulars: Circular 200/2014/TT-BTC (applicable to large enterprises) and Circular 133/2016/TT-BTC (applicable to small and medium-sized enterprises). Both circulars clearly stipulate the accounts used for accounting for personal income tax.
Comparison of user accounts: Circular 200 and Circular 133
Despite differences in accounting systems, the general principle in accounting for personal income tax focuses on two main accounts: Account 334 (Payable to employees) and Account 3335 (Personal income tax payable to the State). This is a crucial consistency that every accountant needs to understand.
| Criteria | Circular 200/2014/TT-BTC | Circular 133/2016/TT-BTC | Notes on accounting for personal income tax |
| Account payable to employees | 334 – Payable to workers | 334 – Payable to workers | Used to record a reduction in the employee's net salary due to personal income tax deductions. |
| Personal Income Tax Account | 333 – Taxes and other payments due to the State | 333 – Taxes and other payments due to the State | Account 3335 is a level 2 account, used to separately track personal income tax obligations. |
| Tax expense account | Accounts 641, 642, 154 (Related expenses) | Account 642, 154 (Related expenses) | Use this when the company pays personal income tax for its employees (accounting for personal income tax borne by the company). |
Principles of recognition and timing of tax liability
According to the accrual accounting principle, the obligation to account for personal income tax arises at the time the enterprise determines the employee's income, regardless of the time of payment.
For example, if the December salary is paid in January of the following year, the obligation to deduct and account for personal income tax is still recorded in the December accounting period. This ensures accuracy in preparing financial statements and personal income tax final settlement reports.
Detailed instructions on accounting for personal income tax based on the transactions that occur.
The personal income tax accounting process is divided into three basic entries, corresponding to three stages: deduction, payment, and settlement. Understanding each stage is key to performing this task perfectly.
Journal Entry 1: Withholding Personal Income Tax (Monthly)
This is the most basic accounting entry, recording the deduction of personal income tax from the employee's total income. This entry reflects the transfer of a portion of the financial obligation from the employee to the enterprise's obligation to pay the state budget.
Basic accounting entries
When determining the amount of personal income tax to be withheld at source from income from salaries and wages (whether paid or not), the accountant makes the following journal entry:
| STT | Content | In debt | Have | Note |
| 1.1 | Personal income tax deduction from employee's salary | Account 334 (Payable to Employees) | Account 3335 (Personal Income Tax Payable) | Record a decrease in the employee's net salary and an increase in their tax liability. |
Detailed illustrative example
Let's assume the total salary payable to employees in the month is VND 500 million (Debit Expense Account/Credit Account 334 is VND 500 million). After applying personal deductions and calculating taxes, the total personal income tax to be withheld at source is VND 15 million. The accounting for personal income tax will be done as follows:
- Accounting entry for total salaries: Debit Account 642 (Administrative and Business Expenses): 500,000,000 VND / Credit Account 334: 500,000,000 VND.
- Accounting entry for personal income tax deduction: Debit Account 334: 15,000,000 VND / Credit Account 3335: 15,000,000 VND.
- Actual salary payments (total expenditure): 500,000,000 – 15,000,000 = 485,000,000 VND.
This accounting entry for personal income tax shows that the actual amount the business has to pay to employees has decreased, while the amount payable to the state has increased by exactly the amount of tax withheld.
Journal Entry 2: Payment of personal income tax to the state budget.
Businesses are responsible for remitting the tax withheld from employees to the State budget on time as prescribed, usually monthly or quarterly depending on the scale of income payments. This accounting entry reduces the tax liability after the money has been transferred.
Accounting entries
When a business pays the withheld personal income tax to the State budget, the accountant records the following:
| STT | Content | In debt | Have | Note |
| 2.1 | Pay personal income tax to the state budget. | Account 3335 (Personal Income Tax Payable) | Account 111/112 (Cash/Bank Deposits) | Reduce tax obligations, reduce the amount of cash/deposits held by businesses. |
Forms of tax payment and documentation
Businesses can pay personal income tax through commercial banks, the State Treasury, or the electronic tax portal. The most important document for accounting for personal income tax is the Payment Slip to the State Budget (electronic payment slip or transfer document clearly stating the tax code and sub-item code). Accountants need to carefully retain these documents for reconciliation, auditing, and tax inspection purposes.
Journal Entry 3: Handling Differences After Personal Income Tax Settlement (Annual)
Personal income tax settlement This is a mandatory annual procedure, usually performed after the end of the fiscal year (before March 31st of the following year). After final settlement, a difference may arise between the amount of tax provisionally withheld (Account 3335 credit balance) and the actual tax payable. The accounting for personal income tax needs to be adjusted accurately.
In case of underpayment (Additional payment required)
When the amount of tax withheld during the year is less than the actual personal income tax payable according to the tax settlement results, the employee must pay the difference. The employer (the income-paying entity) can make the additional withholding from the final salary period, or the employee can pay the difference themselves.
| STT | Content | In debt | Have | Note |
| 3.1 | Record the additional personal income tax payable (borne by the employee). | Account 334 | Account 3335 | Increased tax obligations, reduced net wages for workers. |
| 3.2 | Additional payment to the state budget. | Account 3335 | Account 111/112 | Reduce your tax liability after you have already paid. |
In case of overpayment (refundable or offset against the next payment)
This is a case where the amount of tax provisionally withheld (Account 3335 has a credit balance) is greater than the actual personal income tax payable. This overpayment belongs to the employee. The accounting for the overpaid personal income tax after final settlement and the refund procedure will be handled according to the guidelines of the Tax Administration Law and Circular 80/2021/TT-BTC.
| STT | Content | In debt | Have | Note |
| 3.3 | Refund overpaid taxes to employees. | Account 3335 | Account 334 | Reduce tax obligations and increase wages paid to employees. |
| 3.4 | Paying tax refunds to employees. | Account 334 | Account 111/112 | Reduce salary obligations, reduce wages. |
| Or | ||||
| 3.5 | Offset any overpaid taxes against the next period. | Account 3335 | Account 3335 | Reduce the tax payable for the next period (No specific journal entry needed, just track it in the detailed ledger of account 3335). |
Accountants need to meticulously track the details in Account 3335 (Personal Income Tax) to ensure that the balance after settlement is adjusted to the correct amount or that the refunded/offset amount is recorded for the next period. This is a crucial operation in the annual personal income tax accounting process.
Guidelines for accounting treatment of personal income tax in special cases.
In addition to regular salary and wage income, businesses also have the obligation to deduct and account for personal income tax on many other types of income, including payments made on behalf of or in lieu of others.
Accounting for personal income tax borne by the company (Non-monetary benefit)
In some cases, businesses agree to bear all or part of the personal income tax liability for employees to attract talent or as per the signed employment contract. In such cases, the personal income tax paid by the company is considered an additional taxable income for the employee (accounted for as personal income tax borne by the company).
The principle of aggregate calculation
According to regulations, the personal income tax (PIT) levied by the company must be included in the employee's taxable income for tax calculation purposes (also known as the "gross-up" method). The calculation formula must ensure that the actual PIT paid equals the amount of tax withheld after the taxable income is included.
Accounting entry for personal income tax expense paid by the company.
When a company pays personal income tax on behalf of its employees, this amount is considered a business expense (salary and bonus expense) and is included in the corresponding production and business costs. Accounting for personal income tax in this case is more complex:
| STT | Content | In debt | Have | Note |
| 4.1 | Record the tax expense borne by the company (company-borne personal income tax). | Accounts 641, 642, 154 | Account 3335 | This increases business expenses, thereby increasing personal income tax obligations. |
| 4.2 | Pay personal income tax to the state budget. | Account 3335 | Account 111/112 | Reduce tax obligations, reduce the amount of cash/deposits held by businesses. |
Businesses should note that if this tax expense is not clearly stipulated in the labor contract, financial regulations, or equivalent document, it may be excluded when determining deductible expenses for Corporate Income Tax (CIT) calculation according to Circular 96/2015/TT-BTC.
Accounting for personal income tax paid on behalf of foreign workers (Contractor tax)
For non-resident individuals or foreign individuals working under a foreign contractor contract (Foreign Contractor Tax – FCT), the withholding rules may differ (usually applying a fixed tax rate under Article 20% to income from salaries and wages for non-resident individuals). In many cases, businesses must account for and pay the personal income tax on their behalf.
When businesses pay income and make deductions (or pay on behalf of) non-resident individuals, the accounting treatment for personal income tax still follows the basic principles:
| STT | Content | In debt | Have | Note |
| 5.1 | Personal Income Tax Deduction/Payment on Behalf of Others (FCT) | Account 334/Expense Account | Account 3335 | If deducted from salary (Account 334), or if the company bears the cost (Related Expenses Account). |
| 5.2 | Pay into the state budget. | Account 3335 | Account 111/112 | Completed personal income tax obligations. |
The key point when accounting for personal income tax for this group is to distinguish between deductions for personal income tax (Account 3335) and deductions for corporate income tax (Account 3338 – other taxes) if contractor tax is applied.
Accounting for personal income from irregular income (bonuses, gifts)
Irregular income such as bonuses, lottery winnings, and gifts in cash or in kind of significant value are also subject to personal income tax. The tax rate and tax threshold will differ from income from salaries and wages.
For example, when a company organizes a promotional program and an individual wins a prize worth 50 million VND, the taxable income is 40 million VND (after deducting the first 10 million VND as per regulations), applying tax rate 10%. The amount of personal income tax to be withheld is 4 million VND.
| STT | Content | In debt | Have | Note |
| 6.1 | Pay out bonuses (Total value) | Account 641/642 | Account 111/112 | Record the expenses for the company. |
| 6.2 | Personal income tax deduction from prizes | Account 111/112 | Account 3335 | Record the tax withheld before paying out the prize. (This reduces the actual amount received by the winner). |
Note: Journal entry 6.2 is made when the company receives the personal income tax deduction from the winner (if any) before payment.
Procedures for managing and maintaining accounting records for personal income tax.
Managing personal income tax accounting involves more than just record-keeping; it also includes internal control processes and meticulous record-keeping.
Internal reconciliation and settlement procedures
To ensure the accuracy of personal income tax accounting, accountants need to perform regular reconciliation procedures:
- Monthly reconciliation: Compare the amount of personal income tax withheld (credit amount to account 3335) with the total amount of deductions on the payroll and withholding certificates.
- Quarterly/Annual Reconciliation: Compare the credit balance of account 3335 in the ledger with the amount of tax paid to the state budget (debit entries in account 3335) and the data declared on the Personal Income Tax Return form 05/KK-TNCN.
- Prepare the tax settlement report: Prepare the Personal Income Tax Settlement Report according to form 05/QTT-TNCN and the withholding tax certificate (form 05/TNCN) to complete the accounting obligations for personal income tax at the end of the year.
List of records and documents that need to be archived.
A complete and transparent set of records is fundamental to increasing credibility and trustworthiness in any tax audit. The personal income tax accounting records that need to be stored include:
- Employment contract, Contract addendum.
- Time sheets, Payroll statements (with signatures).
- Registration of dependents, Power of attorney for personal income tax settlement.
- Receipt for payment into the State Budget (Copy or electronic version).
- Monthly/Quarterly Personal Income Tax Return Form (Form 05/KK-TNCN).
- Annual Personal Income Tax Final Settlement Report (Form 05/QTT-TNCN) and related appendices.
FAQ – Frequently Asked Questions about Personal Income Tax Accounting
What is the biggest difference between accounting under Circular 200 and Circular 133?
In principle, there is no difference in accounting entries for personal income tax (both use Debit Account 334 / Credit Account 3335). The main difference lies in the number of level 1 accounts and the way expenses are classified. Businesses applying Circular 200 usually have a more detailed account system (e.g., Account 641 - Selling Expenses, Account 642 - Administrative Expenses). Meanwhile, Circular 133 combines them (only using Account 642 - Administrative Expenses). However, the focus of personal income tax accounting remains the correct application of Account 3335.
How should the overpayment of personal income tax after the tax settlement be handled?
Any overpayment of personal income tax after tax settlement is a right of the employee, and businesses have three ways to handle it. First, they can refund it directly by debiting account 3335/crediting account 334 and then disbursing the money. Second, they can offset it against the next tax period to reduce the tax liability; this method is frequently used because it is quick and easy. Third, they can authorize the individual to handle the tax refund procedure with the tax authorities themselves. Depending on internal policies, businesses choose the optimal option for effective tax management.
How should accounting be done when the company provides assistance with rent and phone expenses?
Allowances such as housing allowance, telephone allowance, and lunch allowance are all included in taxable personal income. If paid directly to employees, the business accounts for it like salary: Debit expense/Credit 334 and deducts tax: Debit 334/Credit 3335. If paid directly to the supplier, this amount is considered a non-monetary benefit and must be included in taxable income, except for housing allowance which is usually calculated under account 15% but cannot exceed twice the base salary. When accounting, businesses must adhere to the limits to ensure that expenses are legitimate when calculating corporate income tax.
Conclude
Personal income tax accounting is a complex and legally significant process that impacts financial statements and relationships with tax authorities. Mastering basic accounting entries (deductions: Debit 334/Credit 3335, payments: Debit 3335/Credit 111/112), understanding Circular 200/133, and handling special cases (overpayment, company liability) are mandatory requirements. This is fundamental for businesses to comply with the law, optimize costs, and effectively manage tax risks.
To perform personal income tax accounting in a standardized manner and confidently face any tax audit, you need a team of experienced and highly qualified consultants and auditors. If your business requires a comprehensive solution for tax accounting, internal control, or in-depth personal income tax settlement services, do not hesitate to contact MAN – Master Accountant Network. MAN is committed to providing the best solutions. auditing services – tax accounting High quality, giving you complete peace of mind regarding financial compliance and transparency.
Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
