Salary taxation in Finland
The COVID-19 crisis will put pressure on salary taxation next 2021 year, when there is a significant need for an increase in unemployment insurance contributions.
The calculations presented in this article show how the forecasted changes in employee contributions will affect the tax rate for four typical wage levels.
According to the preliminary assessment presented by the Employment Fund (Työllisyysrahasto) on 5 May 2020, the total level of unemployment insurance contributions would need to be increased by 0.70 -1.50 percentage points if the State will contribute to the financing the costs of temporarily layoffs in 2020 and 2021. Without the State's participation, there would be a need to increase payments by 1.00 to 2.00 percentage points for 2021. In the fourth draft amending state budget adopted at the beginning of June, it is noted that the State will contribute to the financing of lay-off expenditures in 2020.
Assuming that the sum of the employer's and the employee's unemployment insurance contributions increases by 1.50 percentage points, the increase in the employee's contribution would be half of this, i.e. 0.75 percentage points.
The employee's earnings-related pension insurance contribution is expected to remain unchanged next year. The health insurance health care contribution (sairausvakuutuksen sairaanhoitomaksu) is forecast to decrease by 0.04 percentage points and the health insurance daily allowance contribution (sairausvakuutuksen päivärahamaksu) is forecast to increase by 0.15 percentage points.
| 2020 | 2021 | |
|---|---|---|
| Earnings-related pension insurance contribution, without increase | 7,15 % | 7,15 % |
| Unemployment insurance contribution | 1,25 % | 2,00 % |
| Health insurance daily allowance contribution | 1,18 % | 1,33 % |
| Health insurance health care contribution | 0,68 % | 0,64 % |
Source: Fiscal Plan 16.4.2020, Employment Fund: Työllisyysrahasto 5.5.2020.
As a result of these changes, the employee's income tax rate is rising by 0.4-0.6 percentage points at different income levels. In total, the forecasted changes threaten to tighten salary taxes by about half a billion euros.
Employee's earned income tax rates in Finland, 2020
The full information and the source text can be found at Veronmaksajat website.
Published 07.08.2020, FINREPO