Exceeding personal tax credit limit

Notifications are sent regularly to those who have exceeded the personal tax credit limit and/or paid withholding tax at the wrong tax bracket.

Those who receive such notices are not paying enough tax and are likely to fall into debt after the tax assessment is complete.

The tax levels are three and increase with higher wages. If the income is taxed at a tax bracket that is too low, this means that not enough tax is paid. In the system it comes out as a use of the personal tax credit.

I got a notification, what do I do?

First you must understand the situation and the first step is to log on to the Tax Service website with electronic identification or password and select Almennt > Staðgreiðsluskrá.

Is this because of me or my spouse?

Married couples and cohabiting partners are both sent notifications, even if it applies only to one of them. By clicking "yfirlit til launagreiðanda" you can see the useage of the personal tax credit for both you and your spouse. If the use of the personal tax credit exceeds the maximum permissible limit, action must be taken to avoid debt at the end of the year.

What is the limit for personal tax credit?

To see how much you have exceeded, you must compare the amounts of the used personal tax credit on the service website with the maximum allowable usage table each month.

See the maxium limit month by month

Am I paying in a lower tax bracket or is it the personal tax credit?

On www.skattur.is, go under Almennt > Staðgreiðsluskrá > Ráðstöfun persónuafsláttar to see how the personal tax credit has been used each month.

If tax has been paid at the wrong tax level, the difference between the payment and what was to be paid is shown as personal tax credit.

Only by checking the paycheck (launaseðill) for the months in question can you see if the difference is a payment in the wrong tax bracket, over-used personal tax credit or both.

How do I fix this?

The best way to correct over-useage of personal tax credit is to contact the employer and stop the use of personal tax credit until utilisation is evened out. How long this is, differs from case to case.

If nothing is done, it can be assumed that all over-utilisation of the personal tax credit will become debt in the tax assessment, when the income year and tax return are settled. For each month that the personal tax credit is not used, the prospective debt will lower.

If personal tax credit overused

• Inform your employer that you have overused your personal tax credit and request that the use be stopped until it has evened out.

• If there is more than one employer, you must ensure that you use the full personal tax credit in only one place.

If tax is payed in the wrong tax bracket

• Contact your employer and stop the use of personal tax credit or until the use has evened out.

• Inform the employer of how much of your wages should be taxed in tax bracket 2 or 3 in the future.

If there is more than one employer, you must contact all the employers who are to pay at tax brackets 2 and/or 3.

Do I owe any money that I have to pay now?

Notification sent of the over-utilisation of the personal tax credit is not a notice of a debt.

Those who receive a notification have the opportunity to respond now and prevent debt in the tax assessment next year. This is done by contacting the employer and requesting that the utilization be stopped until the personal tax credit evens out.

If the personal tax credit is overused at the end of the year, the difference will be settled when the income year and tax return is settled.

How can this happen?

There may be many reasons for this, and they may differ depending on the circumstances of each individual. Common reasons that cause personal tax credits to be overused or paid at the wrong tax bracket are:

Wages and salaries of more than one employer

Those who receive payments from more than one employer or pension fund must consider determining the tax bracket correctly and using the personal tax credit only at one employer.

Changing jobs

When changing jobs wage payments from two (or more) employers often overlap. You must make sure that you do not use the personal tax credit in more than one place and choose the correct tax bracket during the transition period.

Going on maternity or paternity leave

It should be considered that the employer does not use the accumulated personal tax credit when parents return to work, if the personal tax credit has been used by Fæðingarorlofssjóður.