What is the total income tax rate in Switzerland/Zurich?

Question

I'm trying to estimate the true tax rate for someone living in Zurich. The definition of "tax" for the purposes of this question is as following (thanks to @Fattie):

1. If a government takes money from your monthly income, and you must give it or you will go to jail

2. You can refer to that as a "tax"

I've used 176k CHF per year as the starting point and plugged into an official looking calculator. If it matters, I'm interested in the tax burden for someone working as a software developer. I'm getting the following numbers:

Gross income	176,000
Contributions to OASI, disability insurance, compensation for loss of earnings	9,284
Unemployment insurance contributions	1,769
Non-occ. accident ins. contributions	593
Pension fund contributions	6,196
Net income	158,158

So before we get to the "tax" part, 17,842 CHF is substracted for various social security contributions? Then we get to additional expenses which don't make much sense:

Income	Canton	Confederation
Net salary, main occupation	158’158	158’158
Other professional expenses, main occupation	-4’000	-4’000
Insurance premiums and interest on savings capital	-2’600	-1’700
Taxable income	151’558	152’458

Are these mandatory or can you refuse to pay them (see definition of "tax" above)? Finally, at the top there's a section with the actual "taxes" being charged:

Tax	Value
Cantonal tax	11’529 CHF
Communal tax	13’720 CHF
Church tax	0 CHF
Personal tax	24 CHF
Direct federal tax	7’798 CHF
Total tax	33’071 CHF

Substracting 33,071 from 151,558, we get 118,487 CHF as the final amount that would land in your bank account after all mandatory contributions, for a total tax rate of 33%. Is this correct?

I've also found this calculator which estimates 124,154 CHF as the final tax burden (if church tax is excluded), but I'm not sure if its more or less accurate than the website linked above.

Update: looks like the second number (124k) is a better estimate.

Answer 1

This is not an in depth answer to your question, just giving some hints.

Swiss taxation system has three layers (ignoring churches):

1. Federal tax
2. Canton tax (=State tax)
3. Communal tax

Please note that communal tax greatly varies wheter you live in the city or suburb. City is among the most expensive in the Canton Zurich.

Calculation of taxable income is slightly different between federal and canton/communal tax.

To understand taxation, it is important to first understand how the whole system works:

Retirement / Pension fund "three pillar system"

1. Governmental (OASI) - Contributions taken off your gross salary
2. Pension fund (Company) - Contributions taken off your gross salary, depending on the pension scheme / plan
3. Individual: Tax advanced savings

First pillar is mandatory and taken off as a percentage from your gross salary.

Anyone who has worked in Switzerland and then left the country is entitled, depending on their nationality, to receive either a refund of the paid OASI contributions or an OASI pension. https://www.ch.ch/en/refund-ahv-contributions/

Second pillar is also mandatory (depending on your gross salary, but certainly for you). Savings contributions belong to you, and there are certain opportunities to "withdraw" this money at a reduced tax rate, before retirement age.

• You may use your pension funds to purchase property, to repay mortgage loans, or
• You may also draw on your pension if you become self-employed, or
• You may draw on your pension if you can prove that you are leaving Switzerland permanently to settle abroad. https://www.ch.ch/en/withdraw-pension-early/

So I would not qualify this part as tax, at least not fully.

Third pillar is not mandatory, but it is possible to save some taxes if you contribute to it.

Health insurance It is compulsory to have "basic" health insurance, but everyone is free to choose what insurance company and what deductible to choose (deductible CHF 300 - 2500). For 2021 in Zurich City, the lowest possible basic health insurance for adults is around CHF 275/month. https://www.priminfo.admin.ch/

So the system roughly works, starting from your gross salary:

+ Gross salary incl all kind of benefits you receive from your employer
- OASI, disability insurance, compensation for loss of earnings
- Unemployment insurance contributions
- Non-occ. accident ins. contributions
- Pension fund contributions

= Net salary

Net salary is what you enter into your tax file / software as a starting point. If you use the software, most deductions do already have a default value which is reasonable. Most important thing to add is how much you pay for health insurance, because it is (partially) deducted from your income.

Also note, that there are a lot of things which influence how much taxes you pay (may or may not be relevant for you):

• Marriage
• Children
• Home ownership
• Interests / dividends
• Assets

Answer 2

I assume you exclude taxes not directly related to income (e.g. fire service tax, garbage collection tax, etc.).

(See last section if you want to know the "average" taxation situation for a certain income.)

The expenses in your second table are deductions for the purpose of calculating taxable income. They are not actually "deducted" from your bank account.

Essentially, the government recognizes that you'll have to pay certain professional expenses out-of-pocket to enable you to work your job and those income are not subject to the income tax. 4000 CHF is the maximum deduction amount if you use the simple calculation method (3% of gross income, min. 2000 CHF, max. 4000 CHF). Sometimes it might be beneficial for you to opt for a detailed method to claim actual expenses incurred (but of course, the taxation authority may require you to provide justifications and receipts).

Health insurance premiums (which are mandatory but technically not a tax) are also deductible. Of course, these deductions have limits (depending on the canton).

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Your personal situation determines the actual taxable income and taxable net wealth. Commute costs (e.g. monthly pass for public transportation, a per-kilometer allowance for cars), payments for childcare, donations to charities, tuition for professional education, extra pension contributions (similar to US IRA or Canadian RRSP) etc. all impact your rate. In some cantons, even your rent to a certain extent is deductible under certain conditions.

In this aspect, it is similar to US and Canada where an accountant may be worthwhile due to the multitude of deductions available to optimize the tax situation.

That is also why no calculator can give you an exact and accurate number with only a gross income.

If you know well about your exact situation (and the relevant definitions in Swiss law), you can click the "Detailed calculation" button and see all the deductions possible on the official Swiss government calculator page (the first you linked). You can check it out anyway to get an idea of what can impact your taxable income.

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Note that if you are a qualifying foreigner (non-Swiss citizen with a temporary residence permit and not married to a Swiss citizen or permanent resident), your taxation can be sometimes significantly simpler under the withholding tax regime (Impôt à la source/Quellensteuer). In that case, you just look up the table to find a percentage, multiply it to your gross income and that's all the income tax (for all levels: federal, cantonal, communal) you'll have to pay (in addition to social insurances). However (from 2021), using this simplified regime also means you cannot claim any other deductions (e.g. pension contributions, education expenses).

The table rates are calculated based on a "average" taxpayer in the canton in a similar personal situation (here the personal situation only includes your civil status, whether you live with your spouse or partner, whether your spouse or partner earns an income, how many children you have, your religion, and sometimes also if your job is part-time or full-time). So in a sense, this is what you could look at for a general idea about the taxation rates.

For Zurich, you can find the information here: https://www.zh.ch/de/steuern-finanzen/steuern/quellensteuer/quellensteuer-tarife.html (German only, unfortunately). You can also use the calculator at https://en.comparis.ch/steuern/quellensteuerrechner/ in English (not official, but mostly accurate since the way the tax is applied is standardized nationally).

Having a >120k gross income makes it mandatory to file an ordinary tax return though. You will still pay the withholding tax, but you will get a reimbursement if they withheld too much and pay extra if the withholding is not enough. If you earn under 120k and fulfill certain other conditions (e.g. no foreign income), you do not need to file a tax return.

For single persons, the table rate is probably more or less accurate. But for couples, due to assumptions made in the table rate calculation (the spousal income is "assumed" and "capped"), high-income couples will often experience the ordinary taxation very differently.