Taxing Wages 2024

Finland

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 Euro (EUR). In 2022, EUR 0.96 was equal to USD 1. In that year, the average worker earned EUR 53 310 (Secretariat estimate).

1. Personal Income Tax System

1.1. Central government and municipal income taxes

1.1.1. Tax unit

Spouses are taxed separately for earned income.

1.1.2. Standard tax allowances and tax credits

1.1.2.1. Standard reliefs

• Work-related expenses: A standard deduction for work related expenses equal to the amount of wage or salary, with a maximum amount of EUR 750 is granted.

• Tax credit: An earned income tax credit is granted against the central government income tax. If the credit exceeds the amount of central government income tax, the excess credit is deductible from the municipal income tax and the health insurance contribution for medical care. The credit is calculated on the basis of taxpayers’ income from work. The credit is 12 percent of the amount of income in question. However, the maximum amount of the deduction is EUR 2 030. The amount of the credit is reduced by 2.03% for the portion of net earned income exceeding EUR 22 000. To the extent that the taxpayer's net earned income exceeds 70,000 euros, the amount of the credit is reduced by 1.21 percent for the exceeding amount. The credit is fully phased out when taxpayers’ income is about EUR 158 000.

• An earned income tax allowance is calculated on the basis of taxpayer’s income from work. The allowance amounts to 51% of income between EUR 2 500 and EUR 7 230 and 28% of the income exceeding EUR 7 230, until it reaches its maximum of EUR 3 570. The amount of the allowance is reduced by 4.5% on earned income minus work related expenses exceeding EUR 14 000.

• A basic tax allowance is granted on the basis of taxable income remaining after the other allowances have been subtracted. The maximum amount, EUR 3 870, is reduced by 18% on income exceeding the aforementioned amount.

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

• Membership fees: Membership fees paid to employees' organisations or trade unions.

• Travelling expenses: Travelling expenses from the place of residence to the place of employment using the cheapest means in excess of EUR 750 up to a maximum deduction of EUR 8 400.

• Double housing expenses: If the place of employment is located too far from home in order to commute (distance > 100km), the taxpayer can deduct the costs of hiring a second dwelling located near the place of work up to EUR 450 per month. This deduction can be claimed only by one person per household.

• Other work-related outlays: Outlays for tools, professional literature, research equipment and scientific literature, and expenses incurred in scientific or artistic work (unless compensated by scholarships).

Travelling expenses and other work related outlays are deductible only to the extent that their total amount exceeds the amount of the standard deduction for work related expenses.

1.1.3. Rate schedule

Central government income tax:

 

Taxable income (EUR )	Tax on lower limit (EUR )	Tax on excess income in bracket (%)
0-19 900	0	12.64
19 900-29 700	2 515.36	19
29 700-49 000	4 377.36	30.25
49 000-85 800	10 215.61	34
85 800	22 727.61	44

1.2. Local income tax

1.2.1. Tax base and tax rates

The tax base of the local income tax is taxable income as established for the income tax levied by central government.

Municipal tax is levied at flat rates. In 2023 the tax rate varies between 4.36 and 10.86%, the average rate being approximately 7.38%.

Municipal tax is not deductible against central government taxes.

2. Compulsory Social Security Contributions to Schemes Operated within the Government Sector

2.1. Employee contributions

2.1.1. Rate and ceiling

In 2023, the rate of the health insurance contribution for medical care paid by an employee is 0.60%. The tax base for this contribution is net taxable income for municipal income tax purposes.

In addition, there is an employees’ pension insurance contribution that amounts to 7.15% of gross salary, an employees’ unemployment insurance contribution equal to 1.50% of gross salary and a health insurance contribution for daily allowance equal to 1.36% of gross salary exceeding € 15,703 (0.00 % on income less than € 15,703). For employees aged 53 to 62, the pension insurance contribution amounts to 8.65% of gross salary. These contributions are deductible for income tax purposes.

2.1.2. Distinction by marital status or sex

The rates do not differ.

2.2. Employers’ contributions

The average rate of the employers’ social security contribution in 2023 is 21.20% of gross wage.

 

	Contribution rates (%)
Health insurance	1.53
Unemployment insurance (avg)	1.54
Earnings-related pension insurance	17.37
Accident insurance (avg)	0.7
Group life insurance (avg)	0.06
Total	21.20

3. Universal Cash Transfers

3.1. Amount for marriage

None.

3.2. Amount for children

The central government pays in 2023 the following allowances (EUR):

 

For the first child	1 138.56
For the second child	1 258.08
For the third child	1 605.48
For the fourth child	1 958.88
Fifth and subsequent child	2 192.28

The child subsidy for a single parent is increased by an annual amount of EUR 819.60 for each child.

4. Main Changes in the Tax/Benefit System since 2022

The responsibility for organizing public healthcare, social welfare, and rescue services was transferred from municipalities to wellbeing services counties starting from 2023. The key objective of this reform was to improve the availability and quality of basic public services throughout Finland. Municipal tax revenue was transferred to the central government to finance activities of the wellbeing services counties. Approximately EUR 14 billion in earned income taxes and around EUR 1 billion in corporate income taxes were transferred. Additionally, the central government transfers to municipalities concerning health and social services were cut by approximately EUR 7 billion.

Changes in earned income taxation were implemented within the existing tax system. Municipal tax rates in all municipalities were reduced by 12.64 percentage points, and central government taxation was tightened accordingly. The tightening of central government taxation was achieved by changing the income tax scale and adjusting several parameters for reducing income taxation. At the same time, tax bases for central government and municipal taxation were combined. This meant that from 2023 onwards, income deductions were granted on the same basis and at the same level in both state and municipal taxation.

Changes in earned income taxation were implemented so that they had as little impact as possible on the level of taxation of taxable persons. The purpose of the reform was not to ease or raise the taxation of anyone. As a result more earned income tax is now paid to the central government and correspondingly less to the municipalities. The overall level of taxation has remained almost unchanged. In accordance with the Government Programme, the reform was carried out in such a way that changes in the tax structure did not, upon entry into force, lead to a tightening of taxation on any income level (by more than 0.2 %-points).

Adjustments for inflation and rise of earnings levels were made to the central government tax scale in 2023.

The maximum amount of the basic allowance in municipal taxation was raised from EUR 3 740 to EUR 3 870. The maximum amount of the earned income tax credit in state taxation was raised from EUR 1 930 to EUR 2 030.

Since 2012, the deductible share of home-loan interest has been reduced gradually, and for the tax assessment of 2022, 5% of home-loan interest was deductible. From 2023, the deductibility of interest expenses from home loans was abolished.

5. Memorandum Items

5.1. Calculation of average gross annual wage

The Finnish figures are generally calculated as follows:

• Gross annual earnings are calculated at an individual level on the basis of the hour’s usually worked, average hourly pay for the fourth quarter, and the share of annual periodic bonuses.

• The earnings exclude sickness and unemployment compensations, but include all normal overtime compensations, bonuses, holiday remunerations and remunerations for public holidays.

5.2. Employer contributions to private pension and health schemes

No information is available.

2023 Parameter values

 

Average earnings	Ave_earn	53 310	Secretariat estimate
Expenses	Work_exp_max	750
	Work_exp_rate	1
Allowances	al_SSC_rate	0.1001
State tax	Tax_min	0
Tax schedule	Tax_sch	0.1264	19900
		0.19	29700
		0.3025	49000
		0.34	85800
		0.44	-
Broadcasting tax	brdcst_tax_rate	0.025
	brdcst_tax_thres	14000
	brdcst_tax_max	163
Earned income tax credit	eitc_thrsh	0
	eitc_rate	0.12
	eitc_redn_thrsh	22 000
	eitc_redn_rate	0.0203
	eitc_redn_thrsh2	70 000
	eitc_redn_rate2	0.0121
	eitc_max	2030
Child tax credit	child_cr	0
	child_thres	0
	child_red	0
Earned income tax allowance	al_thrsh	2 500
	al_thrsh2	7 230
	al_rate	0.51
	al_rate2	0.28
	al_redn_thrsh	14 000
	al_redn_rate	0.045
	al_max	3 570
low income	SL_max	3870
	SL_rate	0.18
Local intax	Local_rate	0.0738
	Church_rate	0
	Local_tot	0.0738
Soc sec taxpayer	SSC_rate	0,006
soc.sec empr	SSC_empr	0.2120
Cash transfer	ch_1	1138.56
	ch_2	1258.08
	ch_3	1605.48
	ch_4	1958.88
	ch_5	2192.28
	ch_small	0
	ch_lone	819.6

2023 Tax equations

The equations for the Finnish system are mostly on an individual basis except for the child benefit which 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
	Work related expenses	work_rel	B	MIN(Work_exp_max, Work_exp_rate*earn)
	SSC deduction	SSC_al	B	earn*al_SSC_rate
	Earned income allowance	earninc_al	B	MIN(al_max, IF(earn>al_thrsh2, al_rate*(al_thrsh2-al_thrsh1)+al_rate2*(earn-al_thrsh2), Positive(earn-al_thrsh)))- MIN(al_max, al_redn_rate* Positive(earn-work_rel-al_redn_thrsh))
	Low income	low_inc	B	Positive(MIN(earn-work_rel-low_al-SSC_al, SL_max)- SL_rate*Positive(earn- work_rel- low_al-SSC_al-SL_max))
2.	Allowances:	tax_al	B	work_rel+SSC_al+earning_al+low_inc
3.	Credits in taxable income	taxbl_cr	B	0
4.	CG taxable income	tax_inc	B	Positive(earn-tax_al)
5.	CG tax before credits	CG_tax_excl	B	='Tax(tax_inc,' Tax_sch)
6.	Tax credits :	tax_cr	B	MINA(eitc_max,eitc_rate*Positive(earn-eitc_thrsh))-MINA(eitc_max,eitc_redn_rate*Positive(MIN(earn-work_rel,eitc_thrsh2)-eitc_redn_thrsh))+eitc_redn_rate2*Positive(earn-work_rel-eitc_thrsh2))
	Child tax credit	child_cr	P	taper(child_cr*(1+(married=0))*children,earn_p-work_rel,child_thres,child_red)
			S	If(tax_inc_s>0,taper(child_cr*children,earn_s-work_rel,,child_thres,child_red),0)
		broadcasting_tax	B	IF((earn-(work_rel+brdcst_tax_thrsh))*brdcst_tax_rate<0,0,IF((earn--(work_rel+brdcst_tax_thrsh))*brdcst_tax_rate>brdcst_tax_max,brdcst_tax_max,( earn---(work_rel+brdcst_tax_thrsh))*brdcst_tax_rate))
7.	CG tax	CG_tax	B	Positive(CG_tax_excl - tax_cr-child_cr)+broadcasting_tax
	Taxable income (local)	tax_inc_l	B	tax_inc
8.	State and local taxes	local_tax	B	Positive(tax_inc_l*Local_tot- (local_tot/(local_tot+SSC_rate))*If((Tax_cr-CG-tax_excl)>0,(Tax_cr-CG-tax_excl)+child_cr,0)
9.	Employees' soc security	SSC	B	Positive(SSC_rate*tax_inc_l - (SSC_rate/(local_tot+SSC_rate))*IF((Tax_cr-CG-tax_excl)>0,(Tax_cr-CG-tax_excl)+child_cr,0)) + SSC_prog_rate* Positive(tax_inc_l-SSC_prog_thrsh)+SSC_al
11.	Cash transfers	cash_trans	J	(Children>0)*ch_1+(Children>1)*ch_2+ (Children>2)*ch_3+ (Children>3)*ch_4+ Positive(Children-4)*ch_4 +(Married=0)*Children*ch_lone
13.	Employer's soc security	SSC_empr	B	earn*SSC_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