Last update: 17.09.2024 08:35
Tax progression means that a higher tax rate applies to higher incomes and assets than to lower incomes. Switzerland and most other countries use progressive tax rates. In Switzerland, only the cantons of Obwalden and Uri have a flat-rate tax (as of 2021). With a flat tax, the tax rate is the same regardless of income.
Tax progression means that you pay more tax on CHF 1,000 of additional income or assets than on the previous CHF 1,000. Or: the more you earn, the higher your tax rate (also known as the “tax base”). Therefore, the tax rate on your income or assets also increases. The rate applicable to the last 100 francs is called the marginal tax rate. This marginal tax rate is much higher than the average tax rate. The higher your income and assets, the greater the impact of tax-reducing measures such as a payment into pillar 3a or a purchase into a pension fund.
Let’s take a look at the effect of tax progression and the marginal tax rate using an example. For a single man (35) from the city of Berne with no assets and a gross income of CHF 78,000, the average tax rate is 15.5%. However, his marginal tax rate is 26.9%. In this case, a reduction in income of 1,000 francs only has an impact of around 730 francs on the wallet (=1,000 – 0.269*1000). How does a purchase of CHF 1,000 into pillar 3a affect the Bernese? The purchase only has a negative impact of CHF 730 on the single person’s household budget. This is because the CHF 1,000 higher tax deduction reduces his taxable income by CHF 1,000 and he pays CHF 270 less tax.
You can easily determine the tax progression and your personal marginal tax rate with this marginal tax rate calculator.
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