The five-bracket tax schedule and the new family circumstance deductions applicable from the 2026 tax period.

The Law on Personal Income Tax No. 109/2025/QH15 makes two changes that most directly affect employees' take-home pay: it cuts the progressive tax schedule to five brackets, and it raises the family circumstance deductions significantly. Both changes apply from the 2026 tax period. They therefore cover the whole of 2026 and are settled at the annual finalisation in early 2027, rather than applying only from the Law's effective date of 1 July 2026.

The progressive tax schedule: from 7 brackets down to 5 brackets

Middle incomes gain the most

• Bracket 2 falls from 15% to 10%. Most office employees earn in this range, so this change affects the most people.
• Bracket 3 falls from 25% to 20%.
• Two intermediate brackets are removed. This flattens the schedule and avoids sharp jumps from one bracket to the next.
• The 35% top rate now starts above VND 100 million per month, instead of above VND 80 million.

The top rate stays at 35%. The Law therefore does not reduce tax for very high earners; it concentrates the reduction on middle and upper-middle incomes.

Higher family deductions apply to the whole of 2026

Taxpayers enjoy the new deductions for the whole of 2026. The two deduction levels above are set directly by Law No. 109/2025/QH15. Before that, Resolution No. 110/2025/UBTVQH15 dated 17 October 2025 had already raised the same deductions under the Law on Personal Income Tax then in force, from the 2026 tax period. Taxpayers therefore do not have to wait until the new Law takes effect on 1 July 2026.

As a result, a single employee with no dependants starts to pay tax only when taxable income exceeds VND 15.5 million per month (before other deductions), instead of VND 11 million as before.

An entirely new deduction: medical and education expenses

Of all the changes, the deduction for medical and education expenses is the newest, and also the one taxpayers most often miss. Under Decree No. 253/2026/ND-CP, a taxpayer may deduct medical and education expenses up to the following limits:

The deduction covers the expenses of both the taxpayer and the taxpayer's dependants.

An expense must meet four conditions at once

An expense is deductible only if it meets all of the following conditions:

1. the expense is supported by lawful invoices and vouchers;
2. the invoices and vouchers show the details of the taxpayer or the dependant;
3. the expense is not paid from any other source, such as sponsorship, financial support or insurance;
4. for medical examination and treatment, the taxpayer also holds a statement of medical expenses issued by the medical facility, in addition to the invoice.

In addition, only resident individuals with income from salaries and wages can claim this deduction, and the taxpayer must file the tax finalisation directly with the tax authority, rather than authorising the employer to finalise on their behalf. In practice, taxpayers most often overlook this requirement.

The third condition matters a great deal in practice. Hospital fees that health insurance or the company's health insurance has already paid do not count towards the deduction. Only the expenses that the taxpayer actually bears qualify.

The second condition requires taxpayers to change one specific habit: when they pay for medical treatment or tuition, they should ask for an invoice showing their name and tax identification number, instead of accepting the usual retail invoice without a name.

Other levels that affect taxable income

• Mid-shift meal allowance: this allowance is not taxable if it does not exceed VND 1.2 million per person per month.
• The taxable threshold for income from winnings, copyright, commercial franchising, inheritances and gifts rises from VND 10 million to VND 20 million per receipt. For copyright and commercial franchising income, the threshold applies contract by contract.

Example: an employee earning VND 40 million a month

Mr A earns a salary of VND 40 million per month, has one dependant and pays compulsory insurance on a salary of VND 40 million (assume the employee's share is VND 4.2 million per month).

Assessable income each month:

40 minus 4.2 (insurance) minus 15.5 (taxpayer) minus 6.2 (dependant) = VND 14.1 million

Tax payable under the five-bracket schedule:

• Bracket 1: VND 10 million × 5% = VND 500,000
• Bracket 2: VND 4.1 million × 10% = VND 410,000
• Total: VND 910,000 per month

Suppose that during the year Mr A pays VND 20 million in hospital fees, with valid invoices in his own name, and VND 24 million in tuition for his child. At the annual finalisation he can deduct up to 20 + 24 = VND 44 million more, and so recover a significant part of the tax already withheld.

This example only illustrates the calculation; the insurance figures are assumptions. Each case must be calculated on the actual salary on which insurance is paid and the statutory contribution caps.

Enterprises need to adjust withholding for the whole of 2026

1. Update payroll software for the five-bracket schedule and the VND 15.5 million and VND 6.2 million deductions. Apply them retroactively to the whole 2026 tax period if tax has been withheld at the old levels.
2. Review the tax withheld since the beginning of 2026 and calculate the difference to adjust at finalisation.
3. Inform employees about the deduction for medical and education expenses and the invoice conditions. Without early guidance, employees may not collect valid documents during the year. Enterprises should also make clear that an employee who wants this deduction must file the finalisation personally and cannot authorise the enterprise to do so.
4. Review welfare policies. Identify which benefits, if the enterprise pays them directly, will cost employees the deduction (because the expense is then "paid from another source"), and which benefits should instead be paid as cash so that employees pay the expenses and claim the deduction themselves.