Sweden
This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.
Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.
The national currency is the Swedish Kronor (SEK). In 2020, SEK 9.27 were equal to USD 1. In that year, the average worker earned SEK 465 767(Secretariat estimate).
1.1. Central government income taxes
1.1.2. Tax allowances and tax credits
1.1.2.1. Standard reliefs
Basic reliefs: A basic allowance is given for assessed earned income and varies between SEK 13 900 and SEK 36 500, depending on income. When individuals pay central government income tax, the basic allowance is at its lowest level, which equals SEK 13 900. The basic allowance depends on the assessed earned income and the basic amount, which equals SEK 47 300 in 2020.
For taxpayers older than 65, the basic relief is calculated differently:
1.1.2.2. Main non-standard tax reliefs applicable to an AW
Interest on qualifying loans: Interest payments are offset against capital income. The resulting net capital income is the tax base. A tax credit is given in the case of negative capital income;
Medical expenses: None. Other allowances are given for: the amount of commuting expenses exceeding SEK 11 000;
other types of work-related expenses exceeding SEK 5 000; examples are the costs of tools, work-related phone calls using the taxpayer’s private telephone;
increased living expenses while on business trips, e.g. such as the use of a private car if these costs are not reimbursed by the employer;
double housing expenses due to temporary work at other geographical locations (too far from home for commuting), or if the family for some reason can't move, even if the job is of a permanent nature;
travelling expenses for travelling home if the taxpayer works in another place than his/her place of residence.
1.1.4. Tax credits
A tax credit equal to 100% of the compulsory social security contributions paid by the employee is granted.
For a person aged 65 or less, an annual Earned Income Tax Credit (EITC) worth up to approximately SEK 31 000 at the average local tax rate is granted on labour income. For those older than 65, a credit worth up to SEK 30 000 is granted. For a person aged 65 or less the EITC is connected to the basic allowance (BAL), the basic amount (BA) and the local tax rate (LTR). For those older than 65 a simplified EITC was introduced in 2009 which is not connected to the local tax rate, the basic allowance or the basic amount. The Basic Allowance is determined in Section 1.121; the local tax rate is discussed in Section 1.2. The Basic Amount (BA) in 2020 is SEK 47300. A phase-out of the EITC for those with incomes above around SEK 600 000 a year was introduced in 2016.
The tax credits are wastable in the sense that they cannot reduce the individual’s tax payments to less than zero. The EITC is deducted from the local government income tax, whereas the tax credit for the social security contributions is deducted from other taxes as well. However, the central government covers the expenses for the tax credits.
For taxpayers younger than 65, the EITC is calculated as follows:
For taxpayers older than 65, the EITC is calculated differently:
1.2. Local government income taxes
1.2.1. General description of the systems
Sweden has both a central government and a local government personal income tax. They are completely coordinated in the assessment process and refer to the same period, i.e. the income year coincides with the calendar year.
2.1. Employees’ contributions
A general pension contribution of 7% of personal income is paid by employees and the self-employed when income is equal to or greater than 42.3% of the basic amount underlying the basic allowance (see Section 1.121). The contribution cannot exceed SEK 37 700 since the general pension contributions are not paid for income over SEK 539 076 708 (=8.07*66 800). The employees’ contribution is offset with a tax credit.
2.2. Employers’ contributions
The employers’ contributions are calculated as a percentage of the total sum of salaries and benefits in a year. For the self-employed, the base is net business income. The rates for 2020 are listed below.
In certain regions, a reduction of 10% of the base, maximum SEK 7 100 per month, is granted (SEK 18 000 per year for self-employed) (it is not included in the calculations underlying this Report). For employees who are over 65 years old and born after 1937 only the retirement pension contribution (10.21%) is applicable. For persons born in 1937 or earlier no employers’ social security contributions, is applied.
There is a reduction of the employers’ contributions for employees between the ages of 15 and 17 (by the beginning of the year). For salaries and benefits less than SEK 25 000 per month the employers’ contributions are reduced to the retirement pension fee.
On premiums for occupational pensions paid by the employer a special wage tax (24.26%) is applied.
For self-employed a general reduction of 7.5% on the SSC is applicable if the income exceeds SEK 40 000 per year. The maximal reduction is SEK 15 000 per year.
A temporary reduction of the employers’ social security contributions was in place between 1st of March to the 30th of June 2020. For salaries and benefits less than SEK 25 000 per month, for up to 30 employees per firm, the employers’ contributions were reduced to the retirement pension fee (10.21%).
For self-employed there is a temporary reduction of the social security contributions for income up SEK 100 000 for 2020. Only the retirement pension fee (10.21%) is to be paid for income below this level.
A tax credit of SEK 1 320 was introduced for low- and average income earners in 1999. The credit is reduced by 1.2% of taxable income above SEK 135 000. This reduction was abolished in 2003 and was replaced by an increase in the basic allowance.
A tax credit of 25% of the social security contribution paid by employees and the self-employed was introduced in 2000. The tax credit has been gradually increased to 100% in 2006.
In 2004, a special tax credit equal to SEK 200 was provided for the statutory minimum local income tax. The special tax credit was abolished in 2005 as was the statutory minimum state income tax (a lump sum tax) of SEK 200.
The central government income tax bracket is indexed with the consumer price index plus 2%. However, some restrictions to the increases were applied in 2004, 2005, 2006, 2016 and 2017. Additional increases were applied in 2009 and 2019. In 2020 the additional central government income tax over the upper bracket was abolished.
The child allowance was increased in 2000, 2001, 2006, 2010, 2017 and 2018.
The basic allowance has been increased in 2001, 2002, 2003, 2005 and 2006. For persons 65 years or older the basic allowance was increased in 2009, 2010, 2011, 2013, 2014, 2016, 2018, 2019 and 2020.
An earned income tax credit was introduced in 2007 with the purpose of making work economically more rewarding relative to unemployment or inactivity. The earned income tax credit was increased in 2008, 2009, 2010, 2014 and 2019. In 2016 a phase-out of the EITC was introduced for persons with incomes above around SEK 600 000.
In 2018 a tax credit for income from sickness and activity compensation (corresponding to disability pension) was introduced.
In 2007, the social security contributions for 18-24-year-old employees and self-employed were reduced. In 2009 the reduction was increased and expanded to include all aged under 26. From 1st August 2015 the reduction was reduced by half and the 1st of June 2016 the reduction was abolished. A reduction of the SSC was reintroduced for 15-17-year-old employees from 1st August 2019.
A special wage tax for persons older than 65 was abolished in 2007 for persons born after 1937 and in 2008 for persons born in 1937 or earlier. In 2016 the special wage tax for older persons was reintroduced at a rate of 6.15%. This was abolished as of 1st July 2019.
A general reduction on the SSC for self-employed was introduced in 2010 and increased in 2014.
The deduction for premiums paid to private pension arrangements was lowered in 2015 from SEK 12 000 to SEK 1 800 and abolished in 2016.
4.1. Changes to labour taxation due to the covid-19 pandemic
A temporary reduction of the employers’ social security contributions was in place between 1st of March to the 30th of June 2020. For salaries and benefits less than SEK 25 000 per month, for up to 30 employees per firm, the employers’ contributions were reduced to the retirement pension fee (10.21%). The temporary measure did not affect the majority of full-time workers within sectors B to N in ISIC rev.4. Therefore, it is not included in the Taxing Wages model for 2020.
For self-employed there is a temporary reduction of the social security contributions to only the retirement pension fee for income below SEK 100 000 for 2020.
Short-term layoffs entered into force in April 2020 but could be applied for retroactively from March 16. The short-term layoffs give employers with temporary economic difficulties the possibility to have their labour costs reduced by up to 52.5% while the central government covers a large share of the employee’s wage bill. Working hours can be reduced by up to 60% while employees keep 92.5% or more of their regular salary. During May–July the program is temporarily reinforced and employers’ labour costs can be reduced by up to 72%., During this period working hours can be reduced by up to 80%, while employees keep 88 per cent of their regular salary.
Companies can defer a maximum of three months payment of employers’ social security contributions, preliminary tax on salaries and value-added tax that are reported monthly or quarterly. The deferral can last up to a year and can be retroactively applied from 1 January 2020.
5.1. Identification of an AW and calculation of earnings
Basic data for gross earnings are taken from the series Official Statistics of Sweden, published by Statistics Sweden. The calculation is based upon total average monthly or hourly earnings, primarily in September of the calendar year. To arrive at the annual earnings, data have been multiplied by the normal amount of hours worked during the year or the stipulated monthly salary has been multiplied by a factor of 12.2. The figures are representative for the country as a whole. The branch classification is NACE Rev.2 B-N according to the OECD recommendation.
5.2. Employer contributions to private health, pension, etc. schemes
There are a handful of widespread private social security schemes. The employers’ contributions to these systems for the blue-collar workers in the private sector equalled to 6.3% of wage earnings in 2007. For white-collar workers in the private sector the employers’ contributions to private social security schemes were 14% in 2007. These figures are based on the statistics of labour costs in the private sector, published by Statistics Sweden.
The equations for the Swedish system are mostly repeated for each individual of a married couple. But the cash transfer is calculated only once. This is shown by the Range indicator in the table below.
The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.