Swiss Withholding Tax (Quellensteuer, impôt à la source)

How Calculated

The amount of tax is determined based on the quellensteuer tables for your canton — your local HR department has no say in how much they withhold.In theory, it’s all supposed to balanceout,butinpractice, you can be at a disadvantage if you have months that take you into much higher tax brackets. I suspect your HR guy is giving you the ‘in theory’ answer, while you’re experiencing the ‘in practice’ reality in your bank account.All is not lost, though. It’s not mandatory, but those earning less than CHF120k can still file a tax return — it’s worth doing the calculation. If you’ve overpaid, you can claim back a refund; if you’ve underpaid, you simply don’t bother filing the tax return and your quellensteuer is considered as full settlement of your tax liability. Whether you’ve underpaid or overpaid is a basis on the tax rate in your village vs. the average tax rate in your canton (which forms the basis of the quellensteuer rates).It’s also worth filing a tax return if you’ve got unusual deductions to claim, as the quellensteuer makes some basic assumptions about your lifestyle and theoretical deductions which may not be realistic (eg, if you have high medical expenses, etc)

 Bonus monthI wonder if someone can give me some advice. I am due to receive a payment from my employer that would total around 30’200 francs in a single month. Spreading the payment across several months is not a possibility.I pay quellensteuer in BL at the C0d level.http://www.baselland.ch/fileadmin/ba…Tarif10_Cd.pdf

If I read the table correctly, the withholding tax jumps from 25.56% to 32.01% when I cross the 30’000 threshold. That means that if I receive the full 30’200, I’ll end up with 20’532 (net), whereas if I handed back CHF200, I’d receive 22’332 (net), or a whopping 1’800 more.

My question is this: am I really coming out ahead by taking the lower payment, or will it all come out in the wash at the end of the year when I file a tax return? 2010 will be the first full year that I spend in Switzerland, and I gather that I’ll need to file a return as my income crosses the threshold.

 

You may find it hard to believe, but that’s the way it works. It is not progressive (as I have verified many times against my paycheque!).

The tables are straight-forward: take your gross pay, find the corresponding tax rate in the table, and your entire pay is taxed at that rate. For the vast majority of people (earning 240k or less a year), this works out fine, because for up to 20k a month, the tax is incremented in bands of 50 francs, so the situation described above (where lower gross pay = higher taxes) doesn’t happen. The problem is that above 20k, there are only three bands (20-25k, 25-30k, and 30k-1000k).

For me, the big drawback of the quellensteuer system is that it assumes your pay remains the same every month. So if you receive 30k one month, your tax is calculated as if you earn 360k a year. It penalises people who receive differing amounts of pay each month. Every ex-pat who only pays quellensteuer will complain about the tax hit they take when they receive their 13th month, their bonus, or their relocation allowance.

At least if you file a tax return, you pay the appropriate amount in the long run (never mind that the tax man has your money until then…).

 

Changing Canton & withholding tax

We moved cantons mid-year (BS to BL) and re-registered with the geminde as soon as we did. At the same time, we informed both of our employers who changed the quellensteuer withholding rate to the new BL rate at the same time. So, in theory, the tax withheld should have been appropriate.At the end of the year, the accountants prepared the tax return – submitting it to our canton as of 31 December. And here’s where it all began to go wrong, despite following the rules to the letter.

Our accountants told us that we had slightly underpaid our tax liability – by about CHF3’000, split roughly equally between BL & BS.

So imagine our surprise when we got a bill for CHF8’000 in underpayment from BS.

Turns out that, despite following the quellensteuer rules and notifying our employers right away, the BS tax authorities disagreed with the way the accountant had split the tax revenue and had used a different allocation. Our net liability was the same (CHF3’000) but we owed an additional CHF8’000 to BS and should be expecting a refund of CHF5’000 from BL.

The moral of the story (and the advice from our accountant) is this: cantonal moves are rarely straight-forward from a tax perspective, and you won’t really know how all the dust settles until you get the final tax assessments from the cantons involved. In our case, this happened almost two years after the tax returns were filed.

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