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Tax authority: Update tax cards now to avoid nasty surprises later

If your tax rate is based on a very low annual pay estimate, you could be in for a shock if you later earn far more.

Tax cards should be updated to reflect major changes in annual income that may have been caused by the coronavirus crisis. Image: Derrick Frilund / Yle

The Finnish Tax Administration is calling on income earners to update their withholding tax information in good time to ensure they don’t pay more tax than they should, especially if their incomes took a hit from the coronavirus crisis.

According to data from the Finnish Tax Administration, more than 620,000 income earners updated their tax cards earlier this year. The changes have so far not been out of the ordinary, although many people’s circumstances would have changed during the spring crisis.

"If you are temporarily laid off and are getting an unemployment allowance, then for example [benefits agency] Kela will directly deduct 20 percent [tax] and unions will take 25 percent so you don’t necessarily have to update your tax card separately," the tax authority’s senior officer Päivi Ylitalo said.

"But of course if salaried income shrinks considerably and you are getting the benefit, then at that stage the card should be updated because a lower tax rate will likely be applied to your final income," she added.

The tax administration said that it expects to see a flurry of activity as income earners rush to update their tax cards after the summer holidays. By that time many people who have been furloughed will know if they will be called back to work or if they will have to continue to rely on benefits.

When they know what the situation will be during the autumn, they will be in a better position to estimate their total income by the end of the year.

"It’s best to check as early as possible and not to leave it too late in the year, when the tax rate could suddenly rise [if income is higher than originally estimated]. In a worst-case scenario, a huge chunk of your December salary could be taxed because the previous tax rate had been too low," Ylitalo explained.

Deductions allowed for telecommuting expenses

Another reason early autumn is a good time to check income levels and tax rates is because employers will likely begin winding down telecommuting and employees will have a better idea of just how much remote work they would have done during the year.

"If you have been telecommuting and you have not been accruing the work-related travel expenses used to calculate your tax rate, then you should update your tax card," Ylitalo advised.

Although employees will not be able to claim as much of a tax relief based on the cost of their work commutes, they could also seek tax deductions based on the cost of working from home. For example, these may include credits for a home office, working tools, equipment and internet connections.

Employees get an automatic 750-euro deduction to cover costs associated with earning an income. However most people temporarily telecommuting will hardly find that their expenses exceed this allowance.

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