Taxation of benefits
Some benefits available from Kela are subject to tax while others are tax-exempt.
Benefits subject to tax:
- Maternity, Paternity and Parental Allowances
- Partial Parental Allowance
- Child Home Care Allowance
- Private Day Care Allowance
- Partial Care Allowance
- Special Care Allowance
- Study Grant
- Training Subsidy
- Training Allowance
- Job Alternation Compensation
- Unemployment Allowance
- Labour Market Subsidy (can also be paid as travel allowance)
- Sickness Allowance
- Rehabilitation Allowance and means-tested rehabilitation assistance
Benefits exempt from tax
- Maternity Grant (cash benefit)
- Child Benefit
- Adoption Grant
- Housing Supplement for Students
- Assistance with student loan interest
- School Transport Subsidy
- Maintenance Allowance during participation in education
- General Housing Allowance
- Disability Allowances
- Conscript's Allowance
- Special Assistance for Immigrants
- Housing Allowance for Pensioners
- Care Allowance for Pensioners
- Front-Veteran's Supplement and Additional Front-Veteran's Supplement
How are benefits and pensions taxed?
Before paying out a taxable benefit, Kela withholds taxes from it.
The withholding is carried out in accordance with the tax laws and the decision of the National Board of Taxes. The obligation to withhold taxes is based on the Act on the Prepayment of Tax (1118/96) and the decision of the Tax Administration. The decision and further information about taxation can be found on the Tax Administration website.
Is it necessary to present your tax card to Kela?
At the beginning of each year, the Tax Administration provides Kela with the tax prepayment details for basic tax cards, suitable for the payment of wages and pensions.
Based on the wage tax card, Kela withholds tax either at a standard rate of 20% or at a rate increased in accordance with the decision of the Finnish Board of Taxes. For pension purposes, the tax administration may precalculate a withholding rate.
If a taxpayer requests a new tax card or tax-at-source card for the purpose of receiving a pension or other benefit, the Tax Administration can send it directly to Kela. However, the Tax Administration does not send revised tax cards ordered by taxpayers to Kela.
Change in the withholding tax rate for a pension or other benefit
The withholding rate indicated on a tax card is often calculated with wages in mind, which means that it may be too high or too small for the purpose of receiving a benefit. Therefore, anyone who begins to draw a pension or other benefit from Kela should request a new tax card. With many benefits, tax will otherwise be withheld at a rate of 20% or higher. The withholding rate on a pension can be as high as 60% if Kela has not been notified of a personal withholding rate calculated for the purpose of receiving a pension.
Anyone who suspects that the withholding rate on their tax card is too low should request that it be raised. This can be done by contacting Kela directly or by requesting a new tax card with a higher withholding rate. The suitable withholding rate can be estimated by using the tax percentage calculator on the Tax Administration website.
New tax cards can be ordered online at www.vero.fi/taxcard. It is also possible to order new tax cards by phone, by mail or by visiting a tax office.
Why are benefits taxed at a higher rate than wages?
The tax rate on a wage tax card is not directly applicable to the taxation of benefits. Many benefits are taxed at a rate equalling the withholding rate for wages times two. This is because there are various deductions which may be applicable to wages but not to benefits (such as the earned income deduction).