Danish tax rules and processes are complicated and often lead to wrong and/or underpaid tax. We can help you make sure this does not happen for you. In the following you can read more about what to do with your tax setup when changing job.
Changing job | What does it mean for your tax payments?
People change jobs all the time, some change job within the same Employer (e.g. promotion or new working area/department) some get a new job at a new Employer and/or some become "job-seeking" and eventually get a new job. Disregarded the situation, whenever you get a new job your employment terms and conditions normally change. Further, when terms and conditions change so does your taxation and tax payments. It is therefore very important to understand the exact changes in your employment terms and conditions and assess how this impacts your tax setup and tax payment so you can update your tax setup accordingly to avoid wrong tax payments resulting in underpaid tax and interest expenses.
4 tips to optimize your tax
Below we give you 4 relevant tips that can help you managing your Danish tax when changing job. Please note that these are examples and that you may have more things to consider in your individual situation.
Tip 1 - Holiday settlement
People often forget to update their Preliminary Income assessment / Tax card with holiday settlement (salary income) resulting in underpaid tax and interest payment to SKAT.
When you change job to a new employer (including within the same legal group of companies) your current employer must according to Danish Holiday law settle earned holiday. As example, you change job and have at that time accrued 25 unused holidays. Because you will change employer, the 25 holidays will be settled between you and your employer and an amount equal to 25 days of salary will be paid into a "holiday account" which is administrated by the Danish government.
The holiday settlement is considered tax liable and must be included in your Preliminary Income assessment / Tax card to make sure you pay the correct amount of tax during the year. Your employer will include an overview of the settlement with the last pay slip where you can identify the actual amount for the holiday settlement which you need to include into your Preliminary Income assessment / Tax Card. If you already know the amount your employer will settle before the months this is paid out, it is advised to update your Preliminary Income assessment / tax card already from that moment.
Tip 2 - Pension Contributions
People often forget to align with their new pension provider about amounts paid into a Ratepension via their old employer. This often lead to payment of pension contributions above threshold allowed as "tax free/deductible" and as a result the contributions made to a Ratepension via the new employer becomes tax liable.
The majority of employers in Denmark offers a company pension scheme. As standard pension contributions are paid into a Ratepension which is categorized as pension plan paid in tranches, often monthly and for at least 10 years from retirement. Pension contributions paid into a Ratepension are tax free/tax deductible when paid in. Taxation is postponed to the future when the money are paid out according to the pension plan.
There is a capped annual amount (2019, DKK 55.900) that can be paid into a Ratepension as tax free/tax deductible. When changing employer your new employer and their pension provider will not know how much you have already paid into a Ratepension via your old employer unless you inform them. By informing them, you can avoid paying to much to a Ratepension and the new pension provider can ensure that pension contributions above threshold are paid into a "Lifelong pension" ensuring the pension contributions will not become tax liable up front.
Tip 3 - Change in salary
When getting a new job the salary package often changes and for the majority of individuals to something higher. Any changes to salary (up or down) must be update in the Preliminary Income assessment / Tax card to ensure that the correct amount of tax are deducted ongoing and to avoid underpaid tax and interest payments to SKAT.
When getting a new job the terms and conditions for the job will be written in the employment contract. This needs to be carefully reviewed and all remuneration elements (base salary, bonus, employer phone, holiday allowance, relocation package, temporary housing etc.) needs to be assessed for tax liability and if taxable included in the Preliminary Income assessment / Tax card.
Tip 4 - Commuting deduction
People often forget to update commuting deduction in the PReliminary Income assessment/Tax card. In case the distance between home and workplace in the new job are shorter/longer compared to the old job, the deduction will be to high/low and result in wrong tax payments and potential interest payment to SKAT.
When you change job this will normally also mean that your physical workplace changes. You are allowed to take a standard commuting deduction for travel between home and workplace. However, the deduction only applies for commuting above 24 km daily. As example, if you have 12 km one way between home and workplace then your daily commuting will be 24 km and no deduction applies. In case the distance between home and workplace is e.g. 20 km one way you will be allowed commuting deduction for the excess kilometers above 24 daily which is this example then would be 16 km per day.
In your Preliminary Income assessment you can update the commuting deduction with new workplace, home address and expected amount of trips. Please note that in case you have not included a commuting deduction during the year, this can always be done when preparing you annual tax return. Please also note that commuting deduction as main rule applies disregard you travel by car, public transportation, bike or pool car.
Good to know
You Preliminary Income assessment (Forskudsopgørelse) is used to determine how much you expect to have of income/deductions during the year and the amount you need to pay in tax is based on this expected income. The Danish tax authority (SKAT) will based on the information informed in the Preliminary Income assessment generate a Tax card stating the tax rate applicable for your expected income and this is then used by your employer when withholding taxes from your salary. To avoid paying a wrong amount in preliminary tax, you must make sure that you include all expected income, deductions, investments etc. and remember to update the Preliminary Income assessment whenever something changes (e.g. new job, salary raise, buying real property, changes in interest expenses, new address with longer/shorter commuting distance etc.).
We can Help You manage your Danish tax and support with preparing both your Preliminary Income assessment (Forskudsopgørelse) and Annual Tax Return (Årsopgørelse). We not only check for relevant allowances and deductions, we also ensure that you pay the correct amount of tax during the year so you do not end up with a big down payment and interest payment to SKAT end of the year.
How to get support?
You can read more about our services and contact us here (www.YourTax.dk). Please feel free to reach out to us in case you need support or would like to hear some more about us and the services we provide.
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