Eydi, Bonuses and Year-End Benefits: How They Are Taxed in Iran

Every February the same question arrives from clients: how much bonus is owed, and how much of it is taxable. This piece separates the three rules that most payroll teams blur together — the labour law obligation, the tax treatment, and the social security position. Getting the distinction right is what keeps the year-end lists defensible.

The statutory formula

Under the law governing annual bonuses for workers covered by the Labour Code, the employer must pay sixty days of the employee's last wage, provided the amount does not exceed ninety days of the legal minimum daily wage.

In operating terms:

• Floor: two months of the employee's monthly wage.
• Cap: three times the statutory monthly minimum wage for that year.

An employee paid at the legal minimum therefore receives exactly two months. Anyone earning more than about one and a half times the minimum hits the three-month cap. The minimum wage is reset annually by the Supreme Labour Council, so the cap must be refreshed each Iranian new year.

The base is wage, not gross pay

The most common calculation error is applying the formula to total gross pay. The base is the wage — base wage plus fixed allowances paid by virtue of the job. Overtime, mission allowances, one-off bonuses and child allowance do not enter the base. Where a workplace operates a job classification scheme, the group wage and seniority increment form part of the base, which is why bonuses in those workplaces run higher.

Partial years are prorated. An employee with eight months of service earns eight twelfths, and if they leave mid-year the amount belongs in the final settlement, not in the December payroll run.

The tax treatment

The eydi is employment income, but it carries its own relief: it is exempt up to one twelfth of the annual exemption under Article 84, and only the excess joins taxable pay. Since the annual exemption is fixed in the budget law each year, so is this ceiling.

A recurring problem in files I have reviewed: payroll software deducts the exempt portion correctly but then taxes the excess in isolation at a base rate, instead of adding it to that month's cumulative taxable pay and running it through the progressive brackets. That understates the withholding, and the shortfall is later assessed with penalties.

Calculation steps

1. Identify each employee's base wage and compute the entitlement, applying both the floor and the cap.
2. Prorate for partial service in the year.
3. Deduct one twelfth of the current year's annual exemption.
4. Add the remaining excess to that month's taxable pay.
5. Apply the current year's progressive brackets to the combined total.
6. Apply the less-developed-regions relief, if applicable, to the final monthly tax.
7. Report the bonus and its tax in that month's filing and remit within the statutory window.

Three categories, not twenty labels

The label on the payslip does not decide the treatment; the substance does. A payment made every autumn under the heading "incentive award" will be read during an inspection as recurring pay and assessed for contributions, whether or not the contract mentions it.

Why no contributions are withheld

The year-end bonus is a non-recurring benefit and stays outside the contribution base. The practical consequence is that in the month of payment, the gross on the tax list far exceeds the gross on the insurance list. That divergence is normal — but you must be able to explain it. I recommend a one-page monthly reconciliation between the two lists showing each difference by line; it is the document that resolves a social security ledger inspection quickly.

Accruing the cost

On an accrual basis the bonus is earned across the year, not in the final month. Book it monthly: debit payroll expense, credit provision for bonuses. Without that, early-year profit is overstated and the closing month's profit collapses, and monthly management reporting becomes meaningless.

For tax purposes, an unpaid provision is generally reversed on assessment unless the obligation is certain, measurable and supported. The safe practice is to settle the provision within the fiscal year; otherwise have the calculation and supporting documents ready during year-end closing.

Deductibility

Bonuses paid to employees who appear on both the insurance list and the payroll tax filing are deductible. Three conditions matter in practice: payment made from the company account and traceable, reported in that month's payroll tax filing, and supported by personnel records — contract, wage order, signed payslip. Cash paid outside the payslip is indefensible during assessment, however real it was, and has no place among deductible expenses.

Recurring year-end errors

1. Calculating on total gross pay rather than the wage base.
2. Applying last year's cap because the minimum wage was not updated.
3. Taxing the excess outside the progressive brackets.
4. Withholding contributions from the bonus, which both overpays and corrupts the list.
5. Skipping the prorated bonus for mid-year leavers.

Key takeaways

• The entitlement is sixty days of last wage, capped at ninety days of the minimum daily wage.
• The calculation base is the wage, not total gross pay.
• Exempt to one twelfth of the annual exemption; the excess belongs in the monthly brackets.
• No social security is withheld — document the resulting list difference.
• Accrue monthly and settle within the fiscal year to keep the expense defensible.