Individual Taxation: What Is Actually Changing?

This reform, awaited for decades, puts an end to the joint taxation of spouses and establishes a system in which each taxpayer – married or not – is taxed separately on their own income and wealth elements.

The proclaimed objectives are threefold: to eliminate the “marriage penalty” inherent in the aggregation of incomes and the progressive tax rate, to strengthen the incentive for the spouse earning the secondary income to pursue gainful employment, and to improve equality between women and men. This article examines the concrete changes brought about by this reform, at both the federal and cantonal levels, in light of the law currently in force.

I. The Current System of Taxation of Couples

The law in force is based on the principle of joint taxation of spouses living in a common household. In the area of direct federal tax (DFT), Art. 9(1) DFTA provides that the incomes of the spouses are aggregated, regardless of the matrimonial property regime. The same applies at the cantonal level, with the THA (Art. 3(3)) imposing this aggregation also for wealth. This system has an “attractive force”: deductions granted to one spouse (for example for children from a previous union or dependent persons in need) benefit the couple as a whole.

To mitigate the effect of tax progression caused by this aggregation, the legislature has provided several corrective measures. At the DFT level, Art. 36(2) DFTA establishes a reduced tax rate schedule for married couples, which also applies, by virtue of Art. 36(2bis) DFTA, to taxpayers living alone with children or dependent persons in need. The cantons enjoy broad discretion to achieve the same objective: some, such as Geneva (Art. 41(2) LIPP/GE), provide a reduced rate schedule; others, such as Vaud (Art. 43(2)(b) LI/VD), use family quotients.

The current system also offers increased deduction ceilings for couples. Thus, the deduction for insurance premiums is increased for spouses (Art. 33(1)(g) DFTA), a deduction for dual-income households is provided (Art. 33(2) DFTA), and a flat-rate social deduction is granted to married couples (Art. 35(1)(c) DFTA). The cantons increase their ceilings in the same direction, while retaining discretion as to the amounts.

From a procedural standpoint, the spouses exercise their rights and fulfil their obligations jointly (Art. 113 DFTA; Art. 40 THA), file a single tax return bearing both signatures, and are jointly and severally liable for the tax owed (Art. 13(1) and (2) DFTA).

II. Changes at the Federal Direct Tax Level

A. Tax Base: Separate Taxation

The most fundamental change lies in the shift to separate taxation of each spouse. Each taxpayer will henceforth be taxed on their own income and wealth elements. The reform provides that income and deductions are attributed to the taxpayer according to their civil status and legal rights. In practice, the allocation is made on the basis of civil law relationships: employment income is attributed to the person who generates it, returns on wealth to the owner of the asset in question, and debts to the contractual debtor. Where applicable, jointly owned property must be allocated in equal halves.

Income acquisition costs are attributed to the person to whom the corresponding income relates, regardless of who actually made the payment. Certain deductions, such as medical expenses or professional training costs, remain strictly personal.

B. General and Social Deductions

The shift to individual taxation entails the outright abolition of several couple-specific deductions. The deduction for dual-income households (former Art. 33(2) DFTA) and the social deduction for married couples (former Art. 35(1)(c) DFTA) are repealed, as they no longer serve any purpose in a system where incomes are no longer aggregated.

In return, each taxpayer will have their own deduction ceilings, regardless of their cohabitation situation. For life insurance premiums, health insurance premiums and interest on savings capital, the ceiling reverts to CHF 1,800 per person, without any increase for couples. Similarly, passive interest will be deductible only by the contractual debtor, and no longer on a cumulative basis.

C. New Tax Rate Schedule

The reform abolishes the dual rate schedule architecture (single persons and couples) in favour of a single rate schedule applying to all taxpayers, regardless of their marital status. The reduced rate schedule for married couples and the parental rate schedule are repealed.

The new rate schedule contains several significant adjustments. The basic tax-exempt amount increases from CHF 15,200 (currently in force, excluding compensation for bracket creep) to CHF 20,000, which constitutes a substantial increase. Marginal rates are lowered for low and middle incomes. Conversely, marginal rates are slightly raised for the highest incomes.

The current “parental rate schedule,” which applied to single-parent families and combined the married couples’ rate schedule with a tax reduction per child, is abolished. Henceforth, the consideration of family burden will be achieved solely through the social deduction for children, third-party childcare costs, and the tax reduction per child, set at CHF 263 per child (subject to compensation for the effects of bracket creep).

D. Special Situations Relating to Children

The reform introduces far-reaching changes concerning the tax treatment of children. The social deduction for children is significantly increased, rising to CHF 12,000 per child. This increase aims to offset the impact of the system change for families, in particular single-income couples or those with a low secondary income.

However, this deduction is now divided equally between the parents when they exercise joint parental authority, whether married or not. Each parent will thus be able to deduct CHF 6,000. The same applies to the deduction for children’s insurance (CHF 700 per child, divided equally), the deduction for third-party childcare costs (ceiling of CHF 25,500, i.e. approximately CHF 12,750 per parent), and the tax reduction per child.

This equal division constitutes a deliberate simplification choice, but may disadvantage single-income couples: the parent without income or with a low income will benefit only partially, or not at all, from the relief effect of the deduction allocated to them. The law does not provide for any transfer of the ineffective deduction to the other spouse, in order to avoid any interdependence between the two tax files. The legislature considered that this was something to be “accepted” in the name of administrative simplification.

The income of minor children under joint parental authority will henceforth be divided equally between the two parents. Only the child’s employment income will continue to be taxed separately, as is the case today.

E. Procedure and Liability

The procedural change is radical. The provision governing the joint procedural rights and obligations of the spouses (Art. 113 DFTA) is purely and simply repealed. Each spouse will henceforth exercise their own procedural rights, file their own tax return, and will no longer be able to consult the other spouse’s tax file or represent them in proceedings.

Consequently, each spouse will be treated procedurally as an independent taxpayer. The right to consult the case documents is limited to those that the taxpayer has personally produced or signed. It should be noted, however, that Art. 170 of the Civil Code maintains the right of each spouse to be informed about the other’s income, assets and debts, which presupposes a certain transparency in the marital relationship.

The joint and several liability between spouses (Art. 13(1) and (2) DFTA) is repealed. Each spouse will be liable only for their own tax debt. This amendment is of considerable significance: the tax authority will no longer be able to pursue one spouse for payment of the other’s tax arrears.

F. Source Tax

Individual taxation considerably simplifies the source tax regime. Rate schedule C (applicable to couples where both spouses pursue gainful employment) is abolished, as is the consideration of marital status in calculating the withholding. The withholding amount will henceforth take into account only professional expenses, insurance premiums and family responsibilities in the form of flat-rate amounts. However, the obligation to take family responsibilities (children) into account in establishing the flat-rate amounts is maintained.

III. Consequences for the Cantons

The reform also amends the THA, which compels the cantons to adapt their own legislation. However, the extent of the freedom left to them varies across subject areas.

In the area of the tax base, the cantons will have to apply the same principles for the attribution of taxable elements as for the DFT. However, they retain their freedom to set the ceilings for general deductions and enjoy virtually absolute autonomy in the area of social deductions. Will they provide corrective measures for single-income couples, for example in the form of a deduction for income disparity? Will they maintain or adapt their family deductions? These questions remain entirely open and will depend on the political choices of each canton.

Regarding the rate schedule, the repeal of Art. 11(1) THA releases the cantons from the obligation to reduce the taxation of married couples relative to that of single persons. They will in principle have to establish a single rate schedule, without distinction based on marital status – including for single-parent families. Cantons currently using family quotients, such as Vaud, or a reduced rate schedule for couples, such as Geneva, will have to fundamentally overhaul their rate systems. The cantons are, however, free to provide specific measures (such as social deductions) to take account of the family situation, in compliance with the constitutional principle of taxation according to economic capacity.

They will also need to recalculate health insurance premium reductions, since these are often indexed to the couple’s taxable income. The new situation, with two separate returns and two separate taxable incomes, will require a revision of the thresholds and calculation methods.

In procedural matters, the cantons will follow the same regime as for the DFT (Art. 40 THA repealed): each spouse will exercise their own rights, and the joint and several liability between spouses, where the cantons had provided for it, must be abolished for systemic coherence.

IV. Who Wins, Who Loses?

According to Federal Council estimates, the reform will result in a decrease in DFT revenue of approximately one billion francs per year, of which some 800 million will be borne by the Confederation and 200 million by the cantons. The proportion of taxpayers benefiting from a reduction will be significantly greater than that of taxpayers whose burden will increase.

The principal beneficiaries will be married dual-income couples with a relatively equal income distribution, for whom the elimination of income aggregation means a significant exit from the progressive bracket. Many married pensioner couples will also benefit. In addition, unmarried persons without children will benefit from the adjustment of the rate schedule, in particular the increase in the basic tax-exempt amount.

Conversely, the reform may result in additional burdens for married single-income couples or those with a low secondary income, particularly in the middle and upper income brackets. The equal division of the child deduction means that it will be partially ineffective for the spouse without income. Single-parent families will generally see their burden increase due to the abolition of the parental rate schedule, even though the increase in the child deduction and the new rate schedule mitigate this effect for low and middle incomes.

V. Entry into Force and Implementation

The amended DFTA and THA will enter into force simultaneously, no later than 1 January of the sixth year following approval by popular vote, i.e. 1 January 2032, although the Federal Council may set an earlier date.

The cantons will have this period to adapt their legislation. If a canton has not implemented the required amendments within the prescribed time limit, the THA will apply directly by virtue of Art. 72(2) THA, subject to the transitional measures that the cantons must nevertheless put in place (Art. 72(3) THA), such as income and wealth tax rate schedules that the THA does not directly regulate.

The administrative burden will be considerable: an estimated 1.7 million additional tax returns will need to be processed at the national level. However, the project has been designed to reduce interdependencies between the files of the spouses and to bring certain simplifications, particularly in the area of source tax.

Conclusion

The Federal Act on Individual Taxation represents a paradigm shift in Swiss tax law. By abandoning the joint taxation of spouses, it addresses a long-standing demand for equity and neutrality with regard to marital status. It provides significant relief for dual-income couples and simplifies the source tax. However, single-income families and single-parent families will have to contend with less favourable consequences, which the increase in the child deduction only partially offsets. For the cantons, the reform opens a major legislative undertaking: it will be for them to define, within the limits of their fiscal autonomy, the new equilibria for the various categories of taxpayers.