Current situation and political ventures
Married couples are taxed jointly in Switzerland, i.e., both incomes and net wealth of a married couple are combined and taxed as a whole. Consequently, married couples may find themselves moving into a higher tax progression band due to the progressive nature of the taxes combined with the level of joint income and net wealth. This may result in a considerably higher direct federal tax burden than that of unmarried couples in the same economic situation. Under cantonal law, the adjustments should usually sufficiently reduce the amount of tax. Therefore, the disparity primarily concerns the direct federal tax. This phenomenon is known as the “marriage penalty”. In turn, the current Swiss tax system often facilitates situations in which one spouse (typically women, due to prevailing societal role distribution) reduces or even gives up his or her professional activity.
In response to this over-taxation resulting from the combined taxation of both married couples’ incomes, and as an indirect counterproposal to a popular initiative with the aim of introducing individual taxation, the Federal Council published a preliminary draft bill on individual taxation with a corresponding explanatory report in December 2022. Both the draft bill and report are currently under public consultation.
Key elements of the proposed individual taxation of married couples
Under the preliminary draft bill, it is planned that the spouses file their tax returns separately. In turn, they are taxed separately like unmarried couples. This proposal for individual taxation would primarily benefit married couples whose income is equally divided. Indeed, according to the progressivity of the tax scale, the tax burden of households strongly depends on the distribution of income. As a result, married couples with no or low secondary income may face additional tax burdens and would in effect be discriminated by the new individual taxation system. For this reason, the preliminary draft bill presents two different models of individual taxation, namely:
- Variant 1: No corrective included for married couples with no or low second income, with the aim to improve work incentives for second earners as much as possible; and
- Variant 2: Includes a corrective on the direct federal tax basis for couples with no or low secondary income, aiming to reduce their additional tax burden by providing a deduction of max. CHF 14’500 (deduction decreases when second income increases).
Moreover, additional measures such as reliefs for married single-earner couples, single-parent families or single persons are foreseen. For example, the child tax deduction available to parents will increase from the current value of CHF 6600 (in 2023) to CHF 9000 per child for direct federal tax purposes, as the transition to individual taxation reduces the relief effect of the child tax deduction for married couples. For single persons and single-parent families, a deduction of CHF 6000 will be provided for direct federal tax purposes. This deduction is justified on the basis that households with at least two adults achieve household savings (e.g., lower housing costs).
Finally, it should be noted that individual taxation will be provided for across all governmental levels. Thus, the cantons will also be responsible for implementing the reform on both cantonal and municipal levels.
The individual taxation of married couples should reduce the burden of direct federal tax on married couples with (more or less) equal incomes. Consequently, the Federal Council expects that tax revenues will drop by CHF 1 billion due to the introduction of individual taxation. Nevertheless, the federal government anticipates positive labour market effects. In particular, facilitating and supporting women working as second earning spouses helps promote gender equality in the workplace. By abolishing the marriage penalty, Switzerland’s tax system is better suited to the modern married dual-earner couple.
The consultation on the preliminary draft bill will last until 16 March 2023. Subsequently, the Federal Council will prepare a final draft bill and a corresponding dispatch, which will then be submitted to the two chambers of parliament. If these chambers take up the matter, a detailed discussion will take place. In the end, both chambers of parliament must approve the entire bill for it to be passed.
If the draft bill is adopted, the committee responsible for the popular initiative on the introduction of individual taxation can decide whether they wish to withdraw their launched initiative (on the condition that no referendum is held or that the draft bill is adopted in the referendum). If they do not withdraw the initiative, a referendum on whether to adopt the popular initiative is held. If the popular initiative fails to secure approval, the adopted bill will enter into force and introduce the individual taxation of married couples (optional referendum possible).
It is assumed that the debate in the chambers of parliament will commence in 2024 at the earliest. Therefore, the bill is not expected to enter into force before 2025.
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