Tax glossary
Taxable income
Taxable income is the amount to which the tax rate is applied — total income minus income-related expenses, general deductions and personal allowances.
Your taxable income is not your salary. It is the result of a three-stage calculation that starts with your total income and applies deductions in several steps. Only this final figure is subject to the tax rate.
Stage one is total income: earnings from employment, pensions, investment income, imputed rental value, maintenance payments received and any other income. Stage two deducts income-related expenses — professional expenses for employees, business expenses for the self-employed, maintenance costs and mortgage interest for property owners. The result is net income.
Stage three covers the general deductions and personal allowances: pillar 3a, insurance premiums, childcare costs, maintenance paid, medical expenses above the deductible threshold, plus child and support allowances. Whatever is left is your taxable income.
The calculation, stage by stage
Each stage has its own logic — and its own pitfalls.
- Total income: everything you receive, including imputed rental value and benefits in kind
- minus income-related expenses: what it cost you to earn that income
- = net income — the basis for the deductible threshold on medical expenses
- minus general deductions: pension savings, insurance, childcare, maintenance payments
- minus personal allowances: child and support allowances
- = taxable income — the basis for the tax rate
Why the canton and the Confederation show different figures
Your tax assessment shows two taxable incomes: one for the cantonal and municipal tax and one for the direct federal tax. The reason is that the deductions differ — personal allowances, the insurance deduction and the treatment of property are governed by cantonal law.
Both figures are correct. Anyone who compares them and takes the difference for a mistake is looking in the wrong place.
Understanding progression
The tax scale is progressive: the higher your taxable income, the higher the rate on your top franc. That is precisely why any additional deduction should be measured against your marginal tax rate, not your average rate.
A deduction of CHF 1,000 at a marginal rate of 28 per cent saves CHF 280 — even if your average tax burden is perhaps only 14 per cent. Knowing this difference lets you assess tax-saving measures realistically.
Example: from gross salary to taxable income
Gross salary CHF 95,000; net salary after social security contributions according to the salary certificate CHF 84,000. Professional expenses of CHF 4,500 are deducted from this, giving a net income of CHF 79,500.
A further CHF 7,258 for pillar 3a and the insurance deduction are then subtracted. This brings taxable income to around CHF 70,000. Tax is calculated on this CHF 70,000 — not on the CHF 95,000 stated in the employment contract.
Frequently asked questions: Taxable income
Why is my taxable income lower than my salary?
Because social security contributions, professional expenses, pension contributions and other deductions lie in between. A difference of 20 to 30 per cent is normal.
How much does an additional deduction save?
The amount of the deduction multiplied by your marginal tax rate. In Winterthur, for middle incomes including federal tax, this is typically between 20 and 30 per cent.
Does taxable income also count for health insurance subsidies and grants?
These systems use their own calculations but take figures from the tax assessment as their starting point. A correct tax return therefore has an effect well beyond your tax bill.
Questions about this term?
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