Income Tax (At Source) vs. Withholding Tax (Tax Declaration)

Hi all,

I am in the process of completing a tax return and noticed a difference in the tax rates for income tax and withholding tax which has confused me.

Taking Basel-Stadt as an example, and assuming a gross annual income of 120k, for last year the cantonal tax rates would be:

a) Taxed At Source - Withholding tax (Quellensteuer) - 16.53% on gross salary

b) Taxed via Tax Declaration - Income tax (Einkommenssteuer) - 21.75% on net salary

I know it's not comparing like-for-like, as it's taxed on gross vs. net, but based on some rough calculations it seems that you end up paying more when taxed via "income tax" through a tax declaration than you'd pay on the exact same salary via withholding tax.

Surely it should be designed in such a way that it equates to the same amount via both methods? Since the tax declaration contains many other possible deductibles, I was expecting to pay less tax via tax declaration and not more.

Maybe I'm missing something here, but I would be grateful if someone could explain how it's supposed to work!

Tax at source fixes a withholding rate which is an average over the kanton, not just averaged over what deductions, etc, are typical. So one of the biggest determiners of whether you come out ahead or behind when you start filing returns is which gemeinde you live in.

Specifically, living in a city typically means that you pay more when you switch to filing returns, because city taxes are high compared to the kantonal average. On the other hand, if you are in a more rural gemeinde, filing returns is likely to save you money. At least, this is the usual wisdom in Kanon Zurich.

Withholding taxes are not supposed to be the upper bound of "what you would've paid without any deductions" but an approximation of what an average taxpayer would owe, so overall it is normal what your actual taxes might be higher.

I am wondering if it's true for Basel Stadt though - it's a canton with 3 gemeinde one of which contains 89% of the residents, so not sure it has the same effect of Zurich.

Overall 5% difference on the withholding vs actual tax rate seems significant. It might be fine, but I'd do extra diligence to check if everything is correct. The best is probably to talk to people from Basel Stadt to see if something similar happens to them. Beside that you can check:

- whether your withholding tax rate is applied properly

- that you did not declare too much income (i.e. did you use the nettolohn figure?)

- if there are huge deductions you missed

- if you have significant external income that is not subject to withholding or you have significant wealth so that these push your actual taxes due higher

Thanks for the explanations as to what the withholding tax is supposed to represent

I double-checked my numbers and it seems to correct.

21.75% on net income actually equated to 16.6% on gross income in my case, so very close to the withholding tax rate in the end.