Withholding tax vs. filing an annual tax return - YouTube

Tax Time with Martin. In this Video I am answering the questions

which are most frequently asked by my clients, by my course participants and also on social media.

Swiss citizens and foreigners with a C permit pay their taxes directly to the tax authorities.

This is not the case for foreigners with another residence permit, such as a B or L permit.

They are subject to withholding tax. This means that the tax is withheld directly at source,

meaning that it is deducted from the salary.

Individuals subject to withholding tax with a gross salary of more than 120,000 Francs per year

must also submit a tax return. This is a so-called subsequent assessment.

Since 2021, individuals with a lower annual salary can request a voluntary filing of an annual tax return.

But beware: filing a voluntary tax return is not always beneficial.

And: if you decide to file a voluntary tax return once, it becomes mandatory for the following years.

So what is the difference between withholding tax and the annual tax return?

Withholding tax is filed monthly on earned income and paid directly by the employer to the tax authorities.

The tax rates for withholding tax are based on the average tax liability of the canton in which the employee lives.

The annual tax return, on the other hand,

is based on the worldwide annual income and the worldwide wealth at the end of the year.

The tax rate is calculated based on the cantonal tax tariff.

The communal tax multiplier of the commune of residence is also considered.

Due to this different calculation, it is possible that you have paid either too much

or too little withholding tax as a result of the annual tax return.

You will either receive a refund or have to pay an additional amount.

The following points must be taken into account:

1. the communal tax rate. For example, if someone lives in the city of Zurich and cannot claim any additional deductions,

the taxpayer tends to fare better with the withholding tax.

The tax rate of the city of Zurich is higher than the average tax rate of the canton of Zurich.

A annual tax return - without any additional deductions - will result in an outstanding tax liability.

2. additional deductions. For example, if you pay contributions to Pillar 3a,

these are not considered in the withholding tax, as Pillar 3a is a voluntary pension plan.

The contributions can be claimed as part of the annual tax return.

However, it should also be noted here that the effective tax rates are taken into account on the final assessment.

Depending on the amount of the salary,

it is possible that an additional tax payment will be made despite you can claim additional deductions.

3. double income. In Switzerland, married couples or couples in a registered partnership are always taxed jointly.

While the withholding tax is calculated individually by the employer on the monthly salary,

the joint income is taxed in the annual tax return.

Depending on the income of both partners, this can lead to an additional tax payment.

4. fluctuating monthly salary: tax rates in Switzerland are progressive.

This means that the higher the income, the higher the tax rate. In the month in which you receive the bonus,

for example, you will notice that the withholding tax rate is higher than in the months in which only the base salary is paid.

These differences are "levelled out" by looking at them annually in the tax return.

Depending on the situation, this may be to your advantage or disadvantage.

5. Other income / assets: While withholding tax is only filed on earned income,

the retrospective assessment is filed on worldwide income and worldwide wealth.

Additional income or high assets can lead to an additional tax burden.

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