Don’t be afraid of tax season! Pocket money is your helper
Every year, when tax season comes, many people feel a headache, especially if it’s new to filing taxes for the first time. But actually, filing taxes is not as scary as you think, as long as you grasp some key concepts, you can easily complete the tax filing process. Among them, personal allowances are a very important concept, which can help reduce the amount of taxes owed and even cause you to not pay taxes at all. In this article, we will help you understand how to save your hard-earned money in 3 minutes using allowances to gain a deep understanding of the relevant knowledge of personal allowances.
What is a personal allowance? Explain in simple terms
A personal allowance, as the name suggests, is a certain amount of money that the government allows to deduct from your income when calculating taxes. This amount is not taxable and is equivalent to the tax exemption given to you by the government. You can think of it as an umbrella to help you block some of your tax burden. For example, if your annual income is HK$300,000 and your personal allowance is HK$132,000, you only need to calculate the taxes owed on the remaining HK$168,000 (HK$300,000-132,000).
The personal allowance is a system set up by the government to reduce the burden on taxpayers, especially in the low- and middle-income groups, and can significantly reduce the tax burden. It’s like a secret weapon to pay less taxes within the statutory limits. Understanding and making good use of your personal allowances can help you save a lot of money when you file your taxes.
What is the amount of personal allowance?
According to the latest regulations of the Hong Kong Inland Revenue Department, the personal allowance for the 2023/24 assessment year is HK$132,000. This means that each taxpayer can deduct HK$132,000 from their annual income, and the rest will have to calculate the taxes owed. This number is subject to change due to inflation and government policy adjustments, so it’s a good idea to check your latest allowance before filing your tax return each year.
Adjusting reserves usually takes into account a variety of factors, including economic conditions, inflation rates, and more. For example, when the economy is in a downturn, the government may increase tax credits to ease the burden on the public. Therefore, taxpayers are advised to pay attention to the latest announcements of the Internal Revenue Service every year so that they can enjoy the latest tax exemption benefits.
How is personal allowance calculated?
Calculating personal allowances is actually quite simple, just remember the basic formulas.Annual Income – Allowance = Taxable Income。 For example, if Xiao Ming’s annual income is HK$250,000, his taxable income is HK$250,000-132,000 = HK$118,000. You can then calculate the amount of tax owed based on this taxable income.個人免稅額是多少
Hong Kong uses a progressive tax rate or a standard tax rate, whichever is lower. The progressive tax rate is divided into the following tiers:
- Initial HK$50,000: 2%
- HK$50,000: 6%
- HK$50,000 more: 10%
- 再びHK$50,000: 14%
- Balance: 17%
Taking Xiao Ming as an example, his calculation of unpaid taxes is as follows:
- First 50,000: 50,000×2% = HK$1,000
- Next 50,000: 50,000×6% = HK$3,000
- Remaining 18,000: 18,000×10% = HK$1,800
- Total: 1,000 + 3,000 + 1,800 = HK$5,800
Who can support you?
In addition to the basic personal allowance, you can also apply for additional allowances if you have eligible dependents. According to the requirements of Hong Kong’s Inland Revenue Department, dependent relatives must meet the following conditions:
- Spouse: 60 years of age or older, or a person who meets the definition of a person with a disability
- Children: Under 18 years of age or full-time students between the ages of 18 and 25
- Parents/Grandparents: Someone who is over 55 years old and usually lives with you or is supported by you
Each eligible dependent can be provided with additional allowances, such as:
- Child Allowance: HK$120,000 per child
- Dependent Parent/Grandparent Allowance: HK$25,000 to HK$50,000 per parent (depending on age and residency status)
Quick check: Am I eligible for other benefits?
In addition to the basic personal allowance and dependents allowance, the Hong Kong Inland Revenue Department (IRD) also offers a range of special allowances, including:
- Disability Allowance: HK$75,000
- Old-age allowance: HK$50,000 (applicable to taxpayers aged 65 and over)
These allowances reflect government care for the less fortunate and the elderly. If you meet these criteria, be sure to apply them when you file your tax return.
Reporting tips:
Here are some helpful tips to help you make the tax filing process smoother:
- Prepare in advance: To avoid last-minute rushes, gather all the documents such as proof of income, proof of allowance, etc.
- Make good use of network resources: The Hong Kong Inland Revenue Department’s e-filing system is easy to use and saves a lot of time
- Check carefully: make sure that all the information is correct and avoid unnecessary troubles due to errors
File your taxes easily and save money on living expenses!
Through the introduction of this article, I hope that you have gained a basic understanding of personal allowances. Remember, how to calculate, these are all important things to know when filing your taxes. By taking advantage of these tax exemptions, you can minimize your tax burden within the law. Filing taxes is not as difficult as you think, and if you prepare in advance and understand the relevant regulations, you can easily complete your tax return and save your hard-earned money!