The term “special rate” is used to designate a temporary reduced tax rate specifically for certain types of income. This rate applies to income that does not occur regularly, such as holiday pay, bonuses, severance pay or death benefits. The idea behind the special rate is to avoid excessive tax deductions on these one-off income.
Level of special rate
The Tax Administration determines percentage of the special rate, which depends on the taxpayer’s income and can range from 0% to 55% in 2023. In most cases, the employer or benefit agency automatically applies the special rate when paying out one-off income. However, if you think the rate applied is incorrect, you can report it to the Tax Office.
Advantages and disadvantages special rate
The special rate has some advantages, such as avoiding excessive tax withholding and avoiding a higher tax bracket. On the other hand, it is important to know that it can also have disadvantages, such as underpayment of tax, which can lead to additional payments later. Therefore, it is essential to be aware of the special rate and communicate about it with your employer or benefit agency in time to avoid unpleasant surprises.
Extra income
Special awards, such as bonuses or year-end bonuses, are extra income on top of regular salary. Employers often give them as appreciation for performance or as part of a benefits package to make working for the company more attractive. These rewards are taxed separately and may affect allowances and tax credits.
Consequences
The effect of special remuneration on allowances and tax credits may lead to a higher tax burden and less allowance received. It is therefore wise to carefully consider the impact on taxes and benefits when receiving a special reward. The amount of tax on a special remuneration depends on the type of remuneration, the amount and the personal situation of the employee. Generally, special rewards are taxed at a higher rate than regular wages.
More information?
If you would like more information on the special rate, please contact AAme’s advisers. They will be happy to assist you.