Taxing Wages 2018

Sweden

Abstract

This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.

Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.

 

 

The national currency is the Swedish Kronor (SEK). In 2017, SEK 8.55 was equal to USD 1. In that year, the average worker earned SEK 434 859 (Secretariat estimate).

1. Personal income tax systems

1.1. Central government income taxes

1.1.1. Tax unit

Spouses are taxed separately.

1.1.2. Tax allowances and tax credits

1.1.2.1. Standard reliefs

• Basic reliefs: A basic allowance is given for assessed earned income and varies between SEK 13 200 and SEK 34 500, depending on income. When individuals pay central government income tax, the basic allowance is at its lowest level, which equals SEK 13 000. The basic allowance depends on the assessed earned income and the basic amount, which equals SEK 44 800 in 2017.

 

Assessed-Earned-Income (SEK) Relative to Basic Amount (BA)	Share of BA at lower bracket	For exceeding income
-0.99	0.423
0.99-2.72	0.423	+0.2
2.72-3.11	0.77
3.11-7.88	0.77	-0.1
7.88-	0.293

For taxpayers older than 65, the basic relief is calculated differently:

 

Assessed-Earned-Income (SEK) Relative to Basic Amount (BA)	Share of BA at lower bracket	For exceeding income
-1.11	1.11
1.11-2.72	1.11	+0.249
2.72-3.77	1.511
3.77-5.40	1.511	-0.1
5.40-12.43	1.348	-0.09
12.43-	0.715

• Standard marital status reliefs: None.

• Relief(s) for children: None.

• Work-related expenses: None.

• Other: None.

1.1.2.2. Main non-standard tax reliefs applicable to an AW

• Interest on qualifying loans: Interest payments are offset against capital income. The resulting net capital income is the tax base. A tax credit is given in the case of negative capital income.

• Medical expenses: None. Other allowances are given for:

• the amount of commuting expenses exceeding SEK 11 000;

• other types of work-related expenses exceeding SEK 5 000; examples are the costs of tools, work-related phone calls using the taxpayer’s private telephone;

• increased living expenses while on business trips, e.g. such as the use of a private car if these costs are not reimbursed by the employer;

• double housing expenses due to temporary work at other geographical locations (too far from home for commuting), or if the family for some reason can’t move, even if the job is of a permanent nature;

• travelling expenses for travelling home if the taxpayer works in another place than his/her place of residence.

1.1.3. Tax schedule

 

Taxable Income (SEK)	Tax (SEK) at lower bracket	For exceeding income, %
0-438 900	0	0
438 900-638 500	0	20
over 638 500	39 120	25

1.1.4. Tax credits

A tax credit equal to 100% of the compulsory social security contributions paid by the employee is granted.

For a person aged 65 or less, an annual Earned Income Tax Credit (EITC) worth up to SEK 26 770 at the average local tax rate is granted on labour income. For those older than 65, a higher credit worth up to SEK 30 000 is granted. For a person aged 65 or less the EITC is connected to the basic allowance (BAL), the basic amount (BA) and the local tax rate (LTR). For those older than 65 a simplified EITC was introduced in 2009 which is not connected to the local tax rate, the basic allowance or the basic amount. The Basic Allowance is determined in Section 1.121; the local tax rate is discussed in Section 1.2. The Basic Amount (BA) in 2017 is SEK 44 800. The Special Amount is based on the taxpayer’s (gross) earned income. A phase-out of the EITC for those with incomes above around SEK 600 000 a year was introduced in 2016.

The tax credits are wastable in the sense that they cannot reduce the individual’s tax payments to less than zero. The EITC is deducted from the local government income tax, whereas the tax credit for the social security contributions is deducted from other taxes as well. However the central government covers the expenses for the tax credits.

For taxpayers younger than 65, the EITC is calculated as follows:

 

Earned Income (EI)	EITC
-0.91 BA	(EI-BAL)*LTR
0.91 BA-2.94 BA	(0.91 BA + 0.332 * (EI-0.91 BA)-BAL)*LTR
2.94 BA-8.08 BA	(1.584 BA + 0.111 * (EI-2.94 BA)-BAL)*LTR
8.08 BA-13.54 BA	(2.155 BA-BAL)*LTR
13.54 BA-	(2.155 BA-BAL)*LTR-0.03*(EI-13.54 BA)

For taxpayers older than 65, the EITC is calculated differently:

 

Earned Income (EI)	EITC
-100 000 SEK	0.2*EI
100 001-300 000 SEK	15 000 SEK + 0.05*EI
300 001-600 000 SEK	30 000 SEK
600 001-1 600 000 SEK	30 000-0,03*(EI-600 000)
1 600 001 SEK -	0

1.2. Local government income taxes

1.2.1. General description of the systems

Sweden has both a central government and a local government personal income tax. They are completely coordinated in the assessment process and refer to the same period, i.e. the income year coincides with the calendar year.

1.2.2. Tax base

The tax base is the same as for the central government income tax. The basic allowance for individuals paying local government tax varies between SEK 13 200 and SEK 34 500; it depends on the taxpayer’s income. For a taxpayer earning the AW, this basic allowance amounts to SEK 13 200 (based on an AW equal to SEK 427 905 – subject to revision with the AW).

1.2.3. Tax rates

The local government personal income tax is proportional and differs between municipalities. The average rate amounts to 32.12% in 2017, with the maximum and minimum rates being 35.15% and 29.19%, respectively.

2. Compulsory social security contributions to schemes operated within the government sector

2.1. Employees’ contributions

A general pension contribution of 7% of personal income is paid by employees and the self-employed when income is equal to or greater than 42.3% of the basic amount underlying the basic allowance (see Section 1.121). The contribution cannot exceed SEK 34 750 since the general pension contributions are not paid for income over SEK 496 305 (= 8.07*61 500). The employees’ contribution is offset with a tax credit.

2.2. Employers’ contributions

The employers’ contributions are calculated as a percentage of the total sum of salaries and benefits in a year. For the self-employed, the base is net business income. The rates for 2017 are listed below.

 

Program	Employer (%)	Self-employed (%)
Retirement pension	10.21	10.21
Survivor’s pension	0.70	0.70
Parental insurance	2.60	2.60
Health insurance	4.35	4.44
Labour market	2.64	0.10
Occupational health	0.20	0.20
General wage tax	10.72	10.72
Total	31.42	28.97

In certain regions, a reduction of 10% of the base, maximum SEK 7 100 per month, is granted (SEK 18 000 per year for self-employed) (it is not included in the calculations underlying this Report). For employees who are over 65 years old and born after 1937 only the retirement pension contribution (10.21%) and a special wage tax (6.15%) is applicable. For persons born in 1937 or earlier no employers’ social security contributions, but a special wage tax (6.15%) is applied. On premiums for occupational pensions paid by the employer a special wage tax (24.26%) is applied.

For self-employed a general reduction of 7.5% on the SSC is applicable if the income exceeds SEK 40 000 per year. The maximal reduction is SEK 15 000 per year.

3. Universal cash transfers

3.1. Transfers related to marital status

None.

3.2. Transfers for dependent children

The transfers are tax exempt and independent of the parents’ income. The transfers for each child are as follows:

 

First child	12 600
Second child	14 400
Third child	18 048
Fourth child	24 720
Fifth and subsequent child	27 600

4. Main changes in tax/benefit systems since 1998

A tax credit of SEK 1 320 was introduced for low- and average income earners in 1999. The credit is reduced by 1.2% of taxable income above SEK 135 000. This reduction was abolished in 2003 and was replaced by an increase in the basic allowance.

A tax credit of 25% of the social security contribution paid by employees and the self-employed was introduced in 2000. The tax credit has been gradually increased to 100% in 2006.

In 2004, a special tax credit equal to SEK 200 was provided for the statutory minimum local income tax. The special tax credit was abolished in 2005 as was the statutory minimum state income tax (a lump sum tax) of SEK 200. The central government income tax bracket is indexed with the consumer price index plus 2%. However, in 2004, 2005 and 2006 the central government income tax bracket was restricted to be indexed with the consumer price index plus 1%. In order to reduce the number of people paying the central income tax, there was an additional increase of the tax bracket in 2009. In 2016 the central government income tax bracket was restricted to be at the same level as 2015.

The child allowance was raised by SEK 1 200 per year in 2000, 2001, 2006 and in 2010 the child allowance for multiple children was raised by SEK 50 for the second child, SEK 100 for the third, SEK 150 for fourth and SEK 200 for the fifth and subsequent children.

Maximum fee for childcare was introduced in 2002.

The basic allowance has been increased in 2001, 2002, 2003, 2005 and 2006. For older people the basic allowance was increased in 2009, 2010, 2011, 2013, 2014 and 2016.

Regarding the unemployment benefit the higher benefit level of SEK 730 for the first 100 days was removed in 2007 and the maximum unemployment benefit was set to SEK 680 during the entire benefit period of 300 days (or 450 days for persons with children under the age of 18). In September 2015, the maximum unemployment benefit was raised to SEK 910 per day in day 1-100 and to SEK 760 per day in day 101-300 (or day 101-450). The compensation in the sick leave was raised from 75 to 80% in 1998. In 2003 the compensation was lowered to 77.6% and, at the same time, the number of days for which the employer is responsible was increased from 14 to 21 days. In 2005 the compensation in the sick leave and the number of days for which the employer is responsible were set to their before-2003 level.

The lowest level of compensation in the parental leave was raised on July 1st 2006 from SEK 60 to SEK 180 per day. The level was raised to SEK 225 in 2013 and once again to SEK 250 in 2016. In 2006 also the maximum income compensated for in the parental leave was raised from 7.5*Basic Amount to 10* Basic Amount.

An earned income tax credit was introduced in 2007 with the purpose of making work economically more rewarding relative to unemployment or inactivity. The earned income tax credit was increased in 2008, 2009, 2010 and 2014. In 2016 a phase-out of the EITC was introduced for persons with incomes above around SEK 600 000.

In 2007, the social security contributions for 18-24-year-old employees and self-employed were reduced. In 2009 the reduction were increased and expanded to include all aged under 26. From 1st August 2015 the reduction was reduced by half and the 1st of June 2016 the reduction was abolished. A special wage tax for persons older than 65 was abolished in 2007 for persons born after 1937 and in 2008 for persons born in 1937 or earlier. In 2016 the special wage tax for older persons was reintroduced at a rate of 6.15%.

A general reduction on the SSC for self-employed was introduced in 2010 and increased in 2014.

The deduction for premiums paid to private pension arrangements was lowered in 2015 from SEK 12 000 to SEK 1 800 and abolished in 2016.

5. Memorandum items

5.1. Identification of an AW and calculation of earnings

Basic data for gross earnings are taken from the series Official Statistics of Sweden, published by Statistics Sweden. The calculation is based upon total average monthly or hourly earnings, primarily in September of the calendar year. To arrive at the annual earnings, data have been multiplied by the normal amount of hours worked during the year or the stipulated monthly salary has been multiplied by a factor of 12.2. The figures are representative for the country as a whole. The branch classification is NACE Rev.2 B-N according to the OECD recommendation.

5.2. Employer contributions to private health, pension, etc. schemes

There are a handful of widespread private social security schemes. The employers’ contributions to these systems for the blue-collar workers in the private sector equalled to 6.3% of wage earnings in 2007. For white-collar workers in the private sector the employers’ contributions to private social security schemes were 14% in 2007. These figures are based on the statistics of labour costs in the private sector, published by Statistics Sweden.

Sweden

2017 parameter values

Average earnings/yr	Ave_earn	434 859	Secretariat estimate
Central income tax
	tax_rate	0.2
	tax_rate2	0.05
	tax_thrsh	438 900
	tax_thrsh2	638 500
Basic Allowance
	gr1	0.99
	gr2	2.72
	gr3	3.11
	gr4	7.88
	gp1	0.423
	gp2	0.2
	gp3	0.1
	gp4	0.293
	gp5	0.77
Local income tax
	local_rate	0.3212
	min_taxl	0
Soc. security amount
	basic_amt	44 800
	basic_ant	61 500
Soc. security contributions
employee	SSC_rate	0.07
employer	SSC_empr	0.3142
ceiling	SSCC	8.07
Child benefit
	Child 1	12 600
	Child 2	14 400
	CB	13 500
Tax credits
	TC1	0
	TC1gr1	0
	TC1gp1	0
	TC2gp1	1
EITC	er_1	0.91
	er_2	2.94
	er_3	8.08
	er_4	13.54
	ep_1	1.584
	ep_2	0.332
	ep_3	0.111
	ep_4	2.155
	ep_5	0.03
Employer payroll tax	PRT	0.1072

2017 tax equations

The equations for the Swedish system are mostly repeated for each individual of a married couple. But the cash transfer is calculated only once. This is shown by the Range indicator in the table below.

The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.

 

	Line in country table and intermediate steps	Variable name	Range	Equation
1.	Earnings	earn
		truncearn	B	TRUNC(earn, -2)
2.	Allowances:	basic_al	B	IF(truncearn<=gr_2*basic_amt, MINA(ROUNDUP(MAXA(gp_1*basic_amt, (gp_1+ gp_2*(gr_2-gr_1))*basic_amt-gp_2*MAXA(gr_2*basic_amt-truncearn, 0)), -2), truncearn), MINA(ROUNDUP(MAXA(gp_4*basic_amt, gp_5*basic_amt-gp_2* MAXA(gr_2*basic_amt-truncearn, 0)-gp_3*MAXA(truncearn-gr_3*basic_amt, 0)), -2), truncearn))
		ssc_al	B	0
	Total	tax_al	B	basic_al
3.	Credits in taxable income	taxbl_cr	B	0
4.	CG taxable income	tax_inc	B	Positive(earn-basic_al)
5.	CG tax before credits	CG_tax_excl	B	tax_rate*Positive(tax_inc-tax_thrsh)+ tax_rate2* Positive(tax_inc-tax_thrsh2)
6.	Tax credits :	ssc_credit	B	Trunc(SSC, -2)
		localtax_credit	B	0
		eitc	B	=TRUNC(MAX((((TRUNC(IF(earned_income>er_2*basic_amt; IF(earned_income> er_3*basic_amt;ep_4*basic_amt;ep_1*basic_amt+ep_3*( earned_income-er_ 2*basic_amt));MIN(earned_income;er_1*basic_amt+ep_2*(earned_income-er_ 1*basic_amt)));0))-basic_allowance)*local_rate)-(IF(earned_income>er_4*basic_ amt;ep_5*(earned_income-er_4*basic_amt);0));0);0)
		Final_eitc	B	MIN(eitc, CG_tax_excl+ local_taxssc_credit)
		tax_cr	B	ssc_credit+localtax_credit+final_eitc
7.	CG tax	CG_tax	B	CG_tax_excl-tax_cr
8.	State and local taxes	local_tax	B	IF(tax_inc>0, TRUNC(local_rate*tax_inc, 0)+min_taxl, 0)
9.	Employees’ soc security	SSC	B	(truncearn>=gp_1*basic_amt)*MINA(ROUNDSSC(truncearn*SSC_rate), ROUNDSSC(SSCC*basic_ant*SSC_rate))
11.	Cash transfers	cash_trans	J	Children*CB
13.	Employer’s contributions		B
	Employer’s SSC	SSC_empr	B	TRUNC(earn*SSC_empr)-Payroll_empr
	Employer’s payroll tax	Payroll_empr	B	TRUNC(earn*PRT)
	Total	Cont_empr	B	SSC_empr+Payroll_empr

Key to range of equation B calculated separately for both principal earner and spouse P calculated for principal only (value taken as 0 for spouse calculation) J calculated once only on a joint basis.