A tax relief that is distributed to individuals through the tax form, instead of one lump sum, will, as its name suggests, also have a dividing effect, and thus make the average tax relief fall.
An individual is paid his wage in cash, and receives the tax deduction immediately.
If the individual pays tax on this sum, the tax deduction (which has already been paid) will have had a dividing effect, and the average tax relief will be reduced by 25 %.
(The total cash payment of the individual will be more or less 25 % higher than it would have been if he had received tax relief immediately after receiving the wage.
If the total cash payment of the individual is made in one lump sum, but it is divided up in two parts and the first part is already included in the salary of the first individual, but the second part is added to the salary of the second individual (so that both individuals receive the full lump sum at the same time), then each individual will receive a wage that is higher by 25 % than his usual wage.
This will have an effect, however, because wages will become higher than usual.
In this case, the dividing effect of the wage payments could have been the cause of the wage increase that resulted. It can therefore not be excluded that this could be the case in reality.)
Explanation for the effect of divided tax relief:
The principle of dividing up the tax relief in two parts is based on the idea that every tax should have an equalizing effect in the end, because the individual who is able to pay more, should also have a higher income tax.
This also implies that the tax relief should always be taken into consideration when dividing up the income of the tax payer.
If the tax payer is able to pay more, and thus receives more tax relief, this should be done in such a way that his wage increase is not reduced by the effect of the tax relief.
The average income in a given tax group can therefore not increase more than 25 % if the dividing effect is calculated in the correct way.
For example:
If a tax payer receives a tax relief of 0,75, and his tax (taxes are calculated without tax relief) is 10 %, then 10 % of 25 % is 2.5 %, and the tax relief is therefore 0,75 – 0,25 = 0,5
The income for tax calculations, however, will be reduced to 8,75, which corresponds to the real income.
In this case, the tax payer would have received an additional benefit of 2.5 %, but not more than this.
A similar principle is applicable if the tax relief is based on the percentage of income, that is paid for taxes, and the income paid for taxes is divided in two parts.
The above example should be adjusted in such a way that the tax payer’s income for the tax relief is divided in 2 parts:
10 % of his total income of 11,5 and 90 % of the remaining income, that is 80 % of the income paid for taxes (11,5 – 10) and 10 % of the remaining income (11,5 – 80), that is 10 % of the income he would have paid for taxes if his tax had not been reduced by the tax relief.
As with the basic income, the income is divided into 2 parts, with the top part being given by the income for the tax, and the lower part being given by the tax relief.
the income for the tax is divided into:
90 % of the income paid for taxes (11,5 – 10) and 10 % of the remaining income (11,5 – 80), that is 90 % of the income he would have paid for taxes if his tax had not been reduced by the tax relief.
The income for the tax is divided into:
10 % of the income paid for taxes (11,5 – 10) and 90 % of the remaining income (11,5 – 80), that is 90 % of the income he would have paid for taxes if his tax had not been reduced by the tax relief.
The above example should be adjusted in such a way that the tax payer’s income for the tax relief is divided in 2 parts:
5 % of his total income of 11,5 and 95 % of the remaining income, that is 90 % of the income paid for taxes (11,5 – 10) and 5 % of the remaining income (11,5 – 90), that is 5 % of the remaining income (11,5 – 80), that is, 5 % of the income he would have paid for taxes if his tax had not been reduced by the tax relief.
Example
A’s taxable income is 20.000.000.000.000.000 kr.
The lower rate of 20 % is paid on income of 0.800.000.000.000.000 kr.
The upper rate of 30 % is paid on income of 15.600.000.000.000.000 kr.
The tax relief is worth 4.000.000.000.000.000 kr.
The income for the tax is:
90 % of the income paid for taxes (20 – 20) and 10 % of the remaining income (20 – 80) that is 90 % of the income he would have paid for taxes if his tax had not been reduced.
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