Taxable income vs. rate-determining income

The Swiss tax system is notorious for its complexity, especially when it comes to income taxation. Among the many terms that arise, "taxable" and "rate-determining" income often cause confusion. But what exactly do these terms mean, and why are they important for anyone looking to understand their tax obligations in Switzerland? In this article, we will clarify the differences between taxable and rate-determining income.

‍

What is taxable income?
‍
Taxes are not calculated on the entire income but on what is known as taxable income, which is generally lower. When calculating taxable income, you can deduct social security contributions and claim various other deductions in your tax return.

‍

What is rate-determining income?
‍
Rate-determining income is the basis for determining the applicable tax rate for an individual. It represents the income at which a specific tax rate is applied to the taxable income. In a progressive tax system, the tax rate often increases with higher income, and the rate-determining income marks the threshold at which a higher tax rate applies. In short, the rate-determining income defines what percentage of a person's income is taxed for tax purposes.

‍

Case examples
‍
• Income and assets in different cantons or abroad: If a person has income and assets both in another canton and abroad, the tax is calculated based on the total income and assets (= rate-determining income). However, the actual tax payment is only made on the values that are taxable in the canton (= taxable income/assets), with tax-free amounts considered proportionally.

‍
• Tax liability during part of the tax period: In cases where the tax liability exists only during part of the tax period, the tax is levied on the income earned during that period (= taxable income). The tax rate for regular income is calculated based on a twelve-month income (= rate-determining income), while irregular income is not converted.