Income tax: what counts as taxable income?

Basic principle of income tax

Income tax is based on the entire income of a taxable person. This includes earned income, income from pensions and pension benefits, and other inflows with a monetary value.

The tax is assessed periodically, usually annually. The basis is the tax return, in which income and deductions are declared.

The decisive principle here is the taxation of total net income: rather than each type of income being considered in isolation, all income is added together and then reduced by the permissible deductions. Only then does the taxable income emerge, to which the respective rates are applied.

Responsibilities of the Confederation, canton and commune

Direct federal tax is levied according to its own rules and supplements the cantonal and communal taxes. Cantons and communes set their own tax multipliers and, in some cases, deductions that differ from the federal ones.

As a result, the tax burden on the same income can vary depending on where you live. Check the guidelines that apply to your canton.

The communes, too, generally levy their own tax multiplier, which is added to the cantonal tax. This three-tier system of Confederation, canton and commune is a core feature of Swiss tax federalism and explains why comparisons between places of residence are only possible with caution.

For the practical assessment, this means that a single tax return serves as the basis for all three levels. The responsible cantonal tax authority determines the taxable income once and then applies the respective rates and tax multipliers of the Confederation, canton and commune separately, so that a single combined tax bill results at the end.

Which types of income are covered?

Taxable income includes, among other things, salary, secondary employment, pensions and income from movable and immovable assets.

Not all inflows are treated the same way; individual benefits may be recorded differently or taxed separately.

Benefits with a monetary value arising from an employment relationship, such as benefits in kind or discounts granted by the employer, may also form part of taxable income. Likewise, certain lump-sum pension benefits may in some circumstances have to be taxed separately and at their own rate rather than together with the rest of your income.

• Earned income from employment or self-employment
• Pensions and pension benefits
• Income from securities and real estate
• Other benefits with a monetary value

Deductions and assessment

Various deductions can be claimed from gross income before taxable income is determined. These include, for example, professional expenses, pension contributions or debt interest.

The specific amounts of the deductions and the applicable rates are set annually and can be found in the current guidelines of your canton.

The assessment usually takes place in the ordinary procedure: you submit your tax return with all relevant supporting documents, the tax authority checks the information and then issues an assessment decision. If anything is unclear, the authority may ask questions or request additional documents.

A sensible approach is to collect supporting documents in an organised way during the current year rather than gathering them together shortly before the deadline. If you file salary certificates, bank statements and certificates as they arrive, you reduce the risk of forgetting items and can complete your tax return more quickly and more completely.

Typical mistakes when declaring

A common mistake is forgetting secondary income, for example from a small side job, from subletting or from occasional payments. Even if such amounts seem small, they generally form part of taxable income and must be declared in full.

Deductions are also sometimes claimed incorrectly or not at all because supporting documents are missing or it is unclear which item they belong to. Filing your documents carefully during the year makes the subsequent declaration considerably easier.

Another typical pitfall is mixing private and business matters in the case of self-employment. Here it pays to keep the accounts clearly separated so that private expenses are not inadvertently declared as business expenses, or vice versa.

Special types of income and special cases

In addition to regular income, there are special cases that require separate consideration, such as irregular lump-sum payments, lottery winnings or income from self-employed secondary activities.

International circumstances, such as income from abroad or cross-border commuter situations, can also entail special rules. In such constellations, a careful review of your individual situation is worthwhile, if necessary with the support of a specialist.

It is also important to distinguish between taxable income and tax-free inflows: not every payment you receive automatically counts as income for tax purposes. Capital gains on private assets, for example, unlike investment income, are in many cases treated differently from ordinary earnings.

What you should have ready

• Salary certificate and other proof of income
• Receipts for professional expenses
• Proof of pension contributions
• Documents relating to secondary income
• Receipts for deductible expenses
• Previous year's tax return for reference

Frequently asked questions