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Old 26.06.2020, 23:43
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Massive increase in tax due to filing a declaration

Hi all, I'm new here, and wondering if anyone has had a similar experience of having to pay a lot more tax on income (like +30%) after filing a tax declaration compared with paying at source.

My wife and I have been working and paying tax at source in Switzerland for a few years, then in 2019 we decided to take the widely given advice and try to optimise our taxes by paying into the third pillar and filing a simplified tax declaration in Vaud were we we live and work.

It turns out the trap was that because we declared a total combined global wealth over 100k or so, we can't used the simplified process, and have to fill in a full tax declaration for 2019.

But when I entered our numbers copied from a salary statements into the VaudTax 2019 software it says we have to pay nearly 1/3 more tax than we did at source! Even after adding all the usual deductions, it's still a couple thousand more that before! And that's without factoring in any wealth tax.

We tried using the official help line though they just said that tax at source and tax based on a declaration works differently and couldn't explain further. But this seems crazy! and surprising given that I've not found any explanation or warnings about it online! Can this be normal?


I thought maybe it's because we were not being taxed as a couple before (despite declaring everything to our employers), but that doesn't seem to explain it, because if I fill in the VaudTax form as if we had a child then it's still about 14% more than at source.
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Old 26.06.2020, 23:59
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Re: Massive increase in tax due to filing a declaration

My advice (having been through this) is to get a local tax agent to do the declarations for you.


The online calculators don't take into account your individual situation. The tax-at-source is based on a cantonal average, but your actual return is based on federal, state and local tax. It may be that you are in a higher tax area.


Also, there might be deductions that you can do - have you actually done your return ?



The other potential problem (been there, done that) is that one or both employers did not deduct Quellensteuer at the right level.


Either way, even if you do get a substantial bill, you can request to pay it in installments. But based on our experience, it's highly unlikely that 30% will be the actual difference.



Are you actuall required to fill a tax return ? I thought that it's required if one income earner gets a salary package that is over 100K, not combined.


The tax return allows you to claim some deductions - that's why the tax-at-source rate is somewhat lower, because it compensates in some way for the fact that at-source you can't claim deductions.
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Old 27.06.2020, 01:14
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Re: Massive increase in tax due to filing a declaration

In very short:

Tax at source is a simplified system which automatically assumes deductions wether you would have them or not, filing yourself however only gives you deductions on things you actually spend on. This can make a huge difference.

And indeed unless you are fully aware of what you all can deduct (often a lot actually) and how the system works here hire somebody to do it for you.

Last edited by EdwinNL; 27.06.2020 at 11:39. Reason: spelling.
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Old 27.06.2020, 10:28
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Re: Massive increase in tax due to filing a declaration

Quote:
In very short:

Tax at source is a simplified system which automatically assumes deductions wether you would have them or not, filing yourself however only gives you deductions on thing you actually spend on. This can make a huge difference.

And indeed unless you are fully aware of what you all can deduct (often a lot actually) and how the system works hire somebody to do it for you.
Exactly this. Has saved me way more than the cost.
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Old 27.06.2020, 10:50
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Re: Massive increase in tax due to filing a declaration

Just make sure you are entering net income in the tax calculator after deducting at least 10k each for allowable deductions v Gross income for tax deducted by employer. That would account for a 30% difference
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Old 27.06.2020, 11:58
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Re: Massive increase in tax due to filing a declaration

Thanks for the replies

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Also, there might be deductions that you can do - have you actually done your return ?

The other potential problem (been there, done that) is that one or both employers did not deduct Quellensteuer at the right level.

Are you actuall required to fill a tax return ? I thought that it's required if one income earner gets a salary package that is over 100K, not combined.

The tax return allows you to claim some deductions - that's why the tax-at-source rate is somewhat lower, because it compensates in some way for the fact that at-source you can't claim deductions.
We wouldn't have been required to to fill in a tax return, but we tried to claim some tax back with the simplified process (for 3rd pillar and commuting etc) but when they noticed we have savings over 100k they sent us a request for a full tax return. So that's what I'm trying to do using the official software (the same as the professionals use I believe).

Now claiming as many deductions as we can without having debts or dependents (including the max for third pillar) still leaves us paying more than before.

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Just make sure you are entering net income in the tax calculator after deducting at least 10k each for allowable deductions v Gross income for tax deducted by employer. That would account for a 30% difference
I made the mistake of entering gross income instead of net on my first attempt and got an even bigger shock


So from the feedback so far it sounds like previously when paying tax at source we were getting the benefit of the doubt on a lot of tax deductions, AND maybe also not paying the penalty for being a married couple. Maybe this could explain it but it... though it's all rather opaque.

I wish just one of the online articles about how to claim back a little tax had come with a warning about this!
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Old 27.06.2020, 12:22
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Re: Massive increase in tax due to filing a declaration

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Thanks for the replies



We wouldn't have been required to to fill in a tax return, but we tried to claim some tax back with the simplified process (for 3rd pillar and commuting etc) but when they noticed we have savings over 100k they sent us a request for a full tax return. So that's what I'm trying to do using the official software (the same as the professionals use I believe).

Now claiming as many deductions as we can without having debts or dependents (including the max for third pillar) still leaves us paying more than before.



I made the mistake of entering gross income instead of net on my first attempt and got an even bigger shock


So from the feedback so far it sounds like previously when paying tax at source we were getting the benefit of the doubt on a lot of tax deductions, AND maybe also not paying the penalty for being a married couple. Maybe this could explain it but it... though it's all rather opaque.

I wish just one of the online articles about how to claim back a little tax had come with a warning about this!
Tax at source assumes deductions of 10-15k depending on salary, you will get in that range from filling in a tax declaration e.g. lunch at work, 3% for training costs, travel to work & limited health insurance premiums.

Never make an investment based on saving tax.
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Old 28.06.2020, 09:12
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Re: Massive increase in tax due to filing a declaration

Are you and your wife making less than 120K together? I would think your total income would be over this and you would have to file a declaration anyway from the beginning.
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Old 28.06.2020, 12:34
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Re: Massive increase in tax due to filing a declaration

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Are you and your wife making less than 120K together? I would think your total income would be over this and you would have to file a declaration anyway from the beginning.
We do make more than that together. Though that wasn't the stated reason for sending us the request for tax declaration. Maybe we slipped through before, as a couple with B permits.
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Old 28.06.2020, 12:45
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Re: Massive increase in tax due to filing a declaration

Quite often paying tax at source is a better deal than making a full declaration. It really is a simplified process and of course makes things easier for the tax authorities too. That's why when you income goes over a certain limit, 120 kCHF in VD, they require you to move to the full declaration.
If you're using VaudTax, the system does guide you through most of the possible deductions (transport to and from work, meals taken away from home, for example), but it may be worth forking out for someone to help you for the first time. You can then use that declaration as the basis for subsequent years.
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Old 28.06.2020, 14:08
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Re: Massive increase in tax due to filing a declaration

I had something similar.

When I transitioned from tax at source to a full declaration, this did end up in me paying more tax overall, but it was nowhere near by the amount you say. It was a moderate three digit sum over a year. It would be difficult to put an exact figure on it as I had a small salary raise at the same time and I wasn't fully able to disentangle the relative effects of both changes. This is in Canton ZH, where the calculation may be slightly different to VD.

Last edited by amogles; 28.06.2020 at 14:19.
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Old 28.06.2020, 14:23
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Re: Massive increase in tax due to filing a declaration

The rules are quite clear.


Our tax got seriously messed up by our employer many years ago, when we first arrived in Switzerland.



As the Cantonal tax office person advised (he was very compassionate and knowledgeable) - you won't end up paying more than a local swiss person. Moving from tax at source to having to do a tax return simply means you end up paying the same as a local swiss citizen.



In the end, if you are a low income earner, the difference will be very small or not at all. If you are a high income earner, you will pay more, and your capacity to do that is clearly higher as well.


It is quite possible that one or both employers have not deducted the correct rate of tax-at-source. That was also part of our problem (we are 'no church tax' but somehow the tax office had us as 'church tax' when we moved from source-only to -tax-return- that also had to be corrected.


It was a mess, but the Swiss are very big with the rules, and our tax agent does not charge us anything for basic confirmation advice (yes, this is correct, no, this is not correct), and we pay them once a year less than 300chf to do the 'household' tax return.
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Old 28.06.2020, 21:18
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Re: Massive increase in tax due to filing a declaration

You're saying a couple of thousand is 1/3 of your usual tax bill?
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Old 28.06.2020, 21:35
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Re: Massive increase in tax due to filing a declaration

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You're saying a couple of thousand is 1/3 of your usual tax bill?
No, I meant that the total tax bill was was up a 1/3 before specifically applying any deductions, and then after applying all the deductions it was still up a couple thousand vs what we paid at source.
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Old 29.06.2020, 00:57
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Re: Massive increase in tax due to filing a declaration

It can happen if:

- Both earn approximately the same amount.
- You live in a high tax commune.
- You have a short travel to work.
- Food is subsidized by employer.

Decductions:
- Did you deduct travel cost? (Bike???)
- Did you deduct the flat rate education cost?
- Did you deduct the food cost?
- Did you deduct the insurance cost (capped) ?
- Did you enter the net income?
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