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Preliminary Income Assessment 2011

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How your tax is calculated on the preliminary income assessment form

How your tax is calculated - on the preliminary income assessment form

Here is an example of a preliminary income assessment. The preliminary income assessment shows your estimated income and deductions as well as estimated provisional tax and labour market contributions for 2011. Also shown are the tax card information, i.e. deductions and withholding rate (next to Hovedkort/Bikort (Primary tax card/Secondary tax card)).

  1. The assessment of your expected income and deductions is normally based on the figures on the tax assessment notice for 2009. If you changed your preliminary income assessment for 2010, the notice is based on these figures instead.
  2. The provisional tax for 2011 is calculated on the basis of your expected income and deductions and on the preliminary property value of your real property, if any. The calculation is specified after the income statement. Any outstanding tax from 2009 is also included in the provisional tax. In this example, property value tax of DKK 5,000 has been calculated on the basis of the public land assessment. Next, the ‘green cheque' has been deducted from the provisional tax. See below for information on the calculation of your withholding rate and tax card deduction.
  3. The expected labour market contribution for 2011 is calculated on the basis of your expected income. The calculation does not include labour market contributions payable on payments to pension schemes established by agreement with the employer. The pension provider will pay in that part of the labour market contribution.
  4. The withholding rate corresponds approximately to the average tax rate (after personal allowance has been deducted). In other words, it is not necessarily the same as the tax on the last krone earned (i.e. the sum of the various tax rates). A number of taxpayers paying B taxes etc. of DKK 15,000 or less are having their withholding rates increased (by a maximum of 5%) because this means that they will not have to pay B tax etc. on special giro transfer forms. The incorporated B tax is specified in the preliminary income assessment.
  5. Normally, the total provisional tax can be collected via your salary/wages or other A income by means of the withholding rate, and, in addition, you will be entitled to a tax-free deduction. But if you are a self-employed businessman - or you have a large B income, such as fees and interest income - it is necessary to collect additional tax on special giro transfer forms (B tax). In these cases, the tax-free deduction will be DKK 0.00. If you have B income only and no A income, your tax is paid solely via giro transfer forms. 

If you have changes for your preliminary income assessment, read the section How to change your preliminary income assessment.

How your tax is calculated

The taxable income is calculated as follows:

Personal income (income after deduction of labour market contributions)
+/- Income from capital
- Assessed deductions
= Taxable income

Personal income, income from capital and taxable income are taxed differently. In the preliminary income assessment and the tax assessment notice, there is a specification showing how your tax has been calculated. The following tax rates and basic allowances are used in the calculation for 2011.

Personal allowance
All fully liable taxpayers are entitled to personal allowance. The personal allowance is DKK 42,900 for taxpayers who have reached the age of 18 by the end of the income year. For children and young persons under the age of 18, the personal allowance is DKK 32,200. For young people under the age of 18 who are married, the personal allowance is, however, DKK 42,900.

The personal allowance is translated into tax values which are used to reduce taxes.

  • The bottom-bracket tax is reduced by 3.67% of the personal allowance.
  • The health contribution is reduced by 8% of the personal allowance.
  • The municipal and church tax is reduced by the combined rate of municipal and church tax, e.g. 25.50%, which is then applied to the personal allowance (the church tax rate is only included if you are a member of the Lutheran Church of Denmark).

If a married taxpayer cannot use the entire tax value, the balance is transferred to his spouse.

Bottom-bracket tax
The bottom-bracket tax is 3.67% and is levied on personal income plus any positive net income from capital.

If a married taxpayer has a negative net income from capital, this amount will be offset against any positive net income from capital of his spouse before the bottom-bracket tax is calculated.

The tax is reduced by the tax value of the personal allowance. See above under Personal allowance.

Top-bracket tax
The top-bracket tax rate is 15%. Top-bracket tax is levied on the part of the income that exceeds a lower limit of approx. DKK 422,800 (DKK 389,900 after deduction of labour market contributions).

For unmarried persons, top-bracket tax is levied on personal income plus any contributions towards capital pension/insurance schemes and towards supplementary one-off benefits from pension funds - and plus any positive net income from capital. As from 2010, however, a basic allowance of DKK 40,000 has been introduced for the levying of top-bracket tax on income from capital.

For married persons, top-bracket tax is levied on each spouse's personal income plus any contributions towards capital pension schemes etc. Any unused part of the basic allowance cannot be transferred to a spouse.

In addition, top-bracket tax is levied on income from capital of spouses whose combined net income from capital is positive in excess of two basic amounts, i.e. in excess of two times DKK 40,000. This tax is levied on the spouse who has the highest personal income (including capital pension contributions etc.). If the relevant spouse's personal income plus capital pension contributions etc. exceeds DKK 389,900 (after deduction of labour market contributions), tax is levied on the combined positive net income from capital in excess of the two basic amounts (DKK 80,000). Top-bracket tax on income from capital is then divided between the spouses in proportion to their positive net income from capital in excess of the basic amounts.

Health contribution
The health contribution is 8% and is calculated on the basis of the taxpayer's taxable income. The contribution is reduced by the tax value of the personal allowance. See above under Personal allowance.

Municipal tax and church tax
The municipal and church tax rates vary from municipality to municipality. In 2010, the average municipal tax rate is 24.9%. The rate for 2011 will be known at the end of October 2010.

Municipal tax and church tax rates are calculated on the basis of the taxpayer's taxable income. The tax is reduced by the tax value of the personal allowance. See above under Personal allowance.

Tax ceiling
The tax ceiling is designed to ensure that your total income tax to the national and local administrations (i.e. bottom-bracket tax + top-bracket tax + health contribution + municipal tax) does not exceed a rate of 51.5% on any part of your income. The limit for income from capital, however, is 47.5% in 2011. Church rates and labour market contributions are not included under the tax ceiling.

Green cheque
As a part of the tax reform, a so-called 'green cheque' has been introduced as compensation for the increased energy taxes. This is not an actual cheque, but rather an amount of DKK 1,300 received by everyone with an income below a certain amount. The amount is automatically incorporated in your preliminary income assessment and tax assessment notice.

In addition, DKK 300 is incorporated per child; however, only for the first two children. As a general rule, the DKK 300 per child is incorporated in the mother's preliminary income assessment and tax assessment notice.

The 'green cheque' is reduced gradually by 7.5% of the part of the income exceeding a basic amount of DKK 362,800. The reduction is thus fully completed after DKK 380,133. For a person with two children, the reduction is fully completed after DKK 388,133.

Outstanding tax from 2009
If your tax assessment notice for 2009 shows that you are liable to pay outstanding tax, such tax up to and including DKK 18,300 will be incorporated into the provisional tax for 2011 with a supplement of 6.6%. Any outstanding tax in excess of this limit is payable in autumn 2010 - with a supplement of 6.6%.

If you have already settled the outstanding tax by voluntary payment(s), it will obviously not be included in the provisional tax.

Examples of calculating withholding rate and tax card deductions

Your withholding rate (T) can be calculated as follows:

T =

A + B where:

 

A =

3.67% bottom-bracket tax + 8% health contribution + total municipal tax rate (municipal and possibly church tax)

per cent 

B =

_top-bracket tax amount x 100_
personal income (after labour market contributions) + capital pension contributions + positive net income from capital in excess of basic amounts

per cent

A and B are calculated to two decimal points. If the sum of A + B exceeds the tax ceiling of 51.5%, T is fixed at 51.5%. For members of the Lutheran Church of Denmark, the church tax rate is added. The total withholding rate is then rounded off to the nearest whole percentage.

The tax card deduction is calculated as the difference between, on the one hand, the A income and, on the other hand, the provisional tax calculated divided by the withholding rate, i.e.:


Deduction =


A income -

(provisional tax calculated, inclusive of any outstanding tax for 2009 and any property value tax based on the public land assessment less ‘green cheque') x 100
                  withholding rate before rounding-up, i.e. with two decimal points


DKK

The deduction per day/week/14 days/month is calculated by dividing the deduction for the year by 365/52/26/12. If the deduction calculated is negative, it means that that part of the income which is A income is too small for it to serve as the basis for levying the total provisional tax calculated. Instead, the remaining tax is paid in the form of B tax instalments (giro transfer forms). In some cases, SKAT will instead include the amount in the withholding rate.

If the preliminary income assessment is changed with effect from a date later than 01 January 2011, account will, in connection with the calculation of the deduction, be taken of any A income earned and any tax paid prior to the time of the changes.

Calculation of the example in the preliminary income assessment

The provisional tax calculated is DKK 109,777.69. The amount is calculated as follows:

Bottom-bracket tax

3.67%

of DKK 364,000 =

DKK 13,358.80

Top-bracket tax

No top-bracket tax is levied in the example (the basic allowance of DKK 389,900 exceeds the calculation basis of DKK 364,000) =

 DKK 0.00

Health contribution

8.00%

of DKK 323,882 =

DKK 25,910.56

Municipal tax

25.04%

of DKK 323,882 =

DKK 81,100.05

Church tax

0.70%

of DKK 323,882 =

DKK 2,267.17

Value of personal allowance etc. is deducted:

3.67%

of DKK 42,900 personal allowance, bottom-bracket tax =

DKK 1,574.43

8.00% 

of DKK 42,900 personal allowance, health contribution = 

 DKK 3,432.00

25.74%

of DKK 42,900 personal allowance, municipal tax = 

 DKK 11,042.46

'Green cheque'

DKK 1,300.00 - 7.5% of (DKK 364,000 - gradual reduction limit DKK 362,800) = 

DKK 1,210.00

Supplementary 'green cheque' for children (DKK 300 per child, max. two children)

It is assumed that the taxpayer is the mother of two or more children, and, as the top-bracket tax basis of DKK 364,000 is lower than the graduated reduction limit for the supplementary 'green cheque' (DKK 380,133), she is entitled to the entire amount = 

DKK 600.00

Property value tax based on the public land assessment =

 

  DKK 5,000.00

Total provisional tax (exclusive of labour market contributions) =

                                                   

DKK 109,777.69

Withholding rate:

A =

3.67% + 8.00% + 25.04% + 0.70% =

37.41%

B =

(No top-bracket tax)

0.00%

T =

 

37.41%
rounded up to
38%

The deduction is:
DKK 364,000 - (DKK 109,777.69 x 100 / 37.41) = DKK 70,555 in annual tax-free deduction. Divided by 12, this corresponds to a monthly deduction of DKK 5,879, which is shown on your E-tax card (see above on the preliminary income assessment).

See more examples in the section More calculation examples.