Tax card for social benefits
Typical examples of social benefits are unemployment and maternity allowance and home care allowance. Many tax deductions are not granted for income consisting of social benefits, although they may be granted to you if you earn a salary. For this reason, even if your income is lower, your withholding rate does not necessarily go down at all.
When you start receiving a social benefit from Kela (or from other payers), we recommend that you ask the Tax Administration for a new tax card. This ensures that you will have a withholding percentage rate that matches your annual income level.
When you ask for a tax card, you must tell us what you have earned so far since January 1st, and how much has been withheld on it.
Revise your tax card or change your prepayments
Tax Card Online (tax.fi/mytax)
Use your personal e-banking identifiers to log in
Other ways to request for a tax card
- telephone our tax-card service 029 497 050
- fill in, print and send the tax-card application to the Tax Administration
- visit a tax office.
Social benefits do not yield the same deduction rights as does wage or salary income
Although the income that consists of the benefits is lower than wage income is, its tax withholding is not necessarily reduced. This is due to the fact that you cannot get the same expense deductions as you can when you earn wages. Examples of what can only be deducted against wage income include expenses for the production of income, the standard earned-income deduction and deduction for work income, and the legally defined pension and unemployment insurance contributions.
Example: If an individual's income for the entire year consists of €17,000 of unemployment relief (based on the individual's past earnings), the withholding rate would be 24% according to the Tax Rate Calculator. However, if the income were €22,000 in wages, the withholding rate would be just 15%. The above example has 'Kuusamo' entered in the Calculator as the individual's municipality of domicile.
Launch Withholding Calculator to estimate the correct withholding rate (vero.fi/verolaskuri, the calculator is available in English).
Some Kela-paid benefits are subject to tax, others are not
You must pay tax on a number of social benefits including parental allowances, home care allowance, job rotation allowance, basic daily allowance, labour market support, sickness allowance, rehabilitation support and study grants.
You don't have to pay tax on e.g. the lump-sum allowance for maternity, childcare allowance, and general housing assistance.
Taxation of income consisting of parental and home care allowance
If your employer continues to pay you wages when you are on maternity leave, it's treated as normal wages and you must pay tax on it in the usual way. However, the maternity allowance and parental allowance you receive from Kela is taxed as a social benefit.
You are not required to hand your tax card over to the Kela office. However, if you don't do so, it is the policy of Kela to withhold tax on the maternity/parental allowance by applying an artificial withholding rate. In other words, the amount of money being withheld depends on whether you have handed a (revised) tax card over to Kela.
Table showing the artificial withholding rates applied by Kela
- If your income only consists of maternal, paternal or home care allowance, Kela normally applies your normal withholding rate for wages (the rate cannot be less than 25%).
- If your income also includes wages,
- the rate applied on maternal/parental benefits is 40%
- the "additional rate" (lisäprosentti; tilläggsprocent) printed on your tax card is what is withheld on home care allowance. Kela also withholds money at the "additional rate" from any other receipts of taxable social benefits you might have.
If you ask for a new tax card for your social-benefit income and have it delivered to the Kela office, they will adjust the withholding according to the instructions printed on the card.
Go online to submit a request (tax.fi/mytax)
Unemployment allowance based on your past earnings is normally subject to more than 20% withholding
When making payments to beneficiaries of benefits, Kela and unemployment funds do not normally require that a tax card be sent to them. However, if this is not done, they effect withholding at artificial rates. The artificial 20-percent rate that Kela normally applies is enough if basic unemployment allowance is being paid. However, if the higher unemployment allowance based on past earnings is in question, that rate is normally too low.
If you don't get a new tax card,
- Kela will withhold 20% on any labour market allowance and basic unemployment allowance paid to you
- Unemployment funds apply the withholding rate of wage income on your receipts of any unemployment allowance based on your past earnings. However, the rate cannot be less than 25%.
If you ask for a new tax card for your social-benefit income and have it delivered to the unemployment fund, they will adjust the withholding according to the instructions printed on the card.
Print it out yourself or have it sent to a specific address (tax.fi/mytax)
Payers of social benefits continue to use the previous year's rate in January
After the new year, the standard tax cards that are automatically sent to all individual taxpayers become effective on 1 February. This means that your card for the previous calendar year continues to be valid in January. However, the accumulation of earnings towards your income ceiling has re-started from zero after New Year, although you continue to use the tax card for the previous year.
Example: In January 2017, your Payer pays an unemployment allowance to you that has accrued for December 2016. The income is included in the 2017 income ceiling, in other words, it does not relate to the 2016 calculations anymore. The date of payment determines the tax year.