Do I Need To Pay Taxes On Social Security – Scandinavian countries are well known for their large social safety net and public financing of services such as universal healthcare, higher education, parental leave, and child and elder care. High levels of government spending naturally require high levels of taxes. A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. action. In 2021, Denmark’s tax-to-GDP ratio was at 46.9%, Norway’s at 42.2%, and Sweden’s at 42.6%. This compares with a ratio of 24.5% in the United States.
So how do Scandinavian countries increase their tax revenues? A first breakdown shows that the consumption tax A consumption tax is generally levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise duties, tariffs, value added taxes (VAT) or a consumption tax. income tax in which all savings are tax deductible. Taxes and social security contributions – both very broad-based taxes – raise much of the additional revenue needed to finance their large-scale public programs.
Do I Need To Pay Taxes On Social Security
In 2021, Denmark (24.7%), Norway (19.7%) and Sweden (21.3%) all raised a high amount of tax revenue as a percentage of GDP from individual taxes, almost exclusively through income taxes personnel and social security contributions. This compares to 17.5% of GDP in individual taxes in the United States.
How Scandinavian Countries Pay For Their Government Spending
Tax wedge A tax wedge is the difference between the total labor cost incurred by the employer and the corresponding net salary of the employee. It is also an economic term that refers to economic inefficiency resulting from taxes.
One way to analyze the level of taxation on employee income is to look at the so-called “tax wedge”, which shows the difference between the cost paid by the employer for an employee and the employee’s net disposable income.
In 2021, the tax wedge for a single worker without children earning the national average wage was 35.4% in Denmark, 36.0% in Norway and 42.6% in Sweden. The Scandinavian countries’ tax wedge is now higher than the US one by 28.4% and the OECD average by 34.6%.
Social security contributions are levied on wages to finance specific programs and provide the right to receive a future (contingent) social benefit. Social security contributions are largely flat taxes An income tax is called a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. and they tend to be limited.
Should We Eliminate The Social Security Tax Cap? Here Are The Pros And Cons
Both Norway and Sweden collect high social security contributions, raising revenue by about 9% of GDP in 2021. In the United States, social security contributions (payroll tax) A payroll tax is a tax paid out of employees’ wages and salaries to fund social security programs such as Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8% of combined federal, state, and local government revenue, the second largest source of such combined tax revenue. es) increase revenues by approximately 6% of GDP.
In Norway and Sweden, social security contributions – employer-side and employee-side together – represent 18.8% and 29.2% respectively of the total labor costs of a single worker without children earning an average wage. This compares to 14.6% in the United States.
Only Denmark does not impose social security contributions to finance its social programs. Instead, he uses a portion of his individual income tax. An individual income tax (or personal income tax) is levied on wages, salaries, investments, or other forms of income earned by an individual or family. The United States imposes a progressive income tax in which rates increase with income. The federal income tax was established in 1913 with the ratification of the 16th Amendment. Although barely 100 years old, individual income taxes represent the largest source of tax revenue in U.S. revenue for these programs.
Maximum personal income tax rates are quite high in Scandinavian countries, with the exception of Norway. The limiting tax rate of personal income tax in Denmark is 55.9%, that of Norway is 38.2% and that of Sweden is 52.3%.
Why Is It Your Social Obligation To Pay Tax Dues
However, tax rates are not necessarily the most revealing feature of Scandinavian income tax systems. In fact, the U.S. top personal income tax rate is higher than Norway’s, at 43.7% (federal and state combined).
Scandinavian countries tend to impose the highest personal income tax rates on (upper) middle class earners, not just high-income taxpayers. For example, Denmark’s maximum statutory personal income tax rate of 55.9% applies to all income above 1.3 times the average income. From a US perspective, this means that all income above $82,000 (1.3 times the US median income of around $63,000) would be taxed at 55.9%.
Norway and Sweden have similarly flat income tax systems. Norway’s maximum personal tax rate of 38.2% applies to all income above 1.5 times the Norwegian average income. Sweden’s top personal tax rate of 52.3% applies to all income above 1.1 times the average national income.
By comparison, the United States imposes its top personal income tax rate of 43.7% (federal and state combined), at 8.5 times the average U.S. income (at about $530,000). Therefore, a relatively small proportion of taxpayers find themselves having to pay the maximum rate.
Will Your Stimulus Check Increase Your Tax On Social Security Benefits?
It is important to underline that the overall progressivity of an income tax depends on the structure of all tax brackets. A tax bracket is the range of income taxed at certain rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates increase as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s, exemptions and deductions, not only on the maximum tariff and its threshold. Furthermore, the amount of tax revenue collected in a given tax system depends on the distribution of taxable income. Taxable income is the amount of income subject to tax, net of deductions and exemptions. For both individuals and corporations, taxable income is different and is lower than gross income. .
In addition to income taxes and social security contributions, all Scandinavian countries collect a significant amount of revenue from value added taxes (VAT). VAT is similar to sales tax. A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt items such as food; Broadening the base, such as including food, could keep rates lower. A sales tax should exempt business-to-business transactions which, if taxed, cause a tax pyramid. in the sense that they aim to tax consumption. However, VAT is assessed on the value added at each stage of production of a good or service rather than just the final selling price.
As a consumption tax, VAT is economically efficient: it can generate significant revenue with relatively little damage to the economy. However, depending on the structure, VAT can be regressive because lower income earners tend to consume a larger share of their incomes.
In 2021, Denmark collected around 9.6% of GDP through VAT, Norway 8.2% and Sweden 9.2%. All three countries have VAT rates of 25%. The United States does not have a national sales tax or VAT. Instead, there are state and local sales taxes. The average tax rate The average tax rate is the total taxes paid divided by taxable income. While marginal tax rates show the amount of taxes paid on the next dollar earned, average tax rates show the overall share of income paid in taxes. across the country (weighted by population) it is about 7.5%. Because of the much lower rate, combined with a narrower base, U.S. sales taxes only raise about 2% of GDP in revenue.
Corporate Income Tax In Singapore
While Scandinavian countries collect significant amounts of tax revenue from individuals through income tax, social security contributions and VAT, corporate income tax A corporate income tax (CIT) is collected by governments federal and state governments on corporate profits. Many businesses are not subject to the CIT because they are taxed as pass-through businesses, with reportable income under individual income tax. es, as in the United States, play a less important role in terms of revenue.
In 2021, the United States collected 1.4% of GDP in corporate income tax, below the OECD average of 2.9%. Denmark and Sweden recorded a similar share to the OECD average, at 3.7% and 3.0% of GDP respectively. Norway is an exception with corporate revenue equal to 9.7% of GDP. Norway sits on large oil reserves and charges companies a corporate income tax rate of 78% for extractive activities.
The corporate income tax rates of all Scandinavian countries are lower than those of the United States. In 2022, the mandatory corporate income tax rates of both Denmark and Norway were 22%, while Sweden’s corporate income tax rate was 20.6%. The US corporate tax rate is slightly higher at 25.8% (federal and state combined).
The taxation of capital gains and dividends in the Scandinavian countries is similar to that of the United States, with the exception of Denmark and Norway. Denmark’s top tax rate on dividends and capital gains is among the highest in the OECD, at 42%. Norway (35.2%) increased capital gains tax in 2022.
Ask The Tax Whiz] Is The Bir Only After Top Social Media Influencers?
Swedish taxes on capital gains and dividends (30%) are more in line with those in the United States. The United States taxes dividends and capital gains at 28.94% (federal and state combined).
The Scandinavian countries provide a broader picture
