Can you claim reduced capacity to pay taxes?

As we know the Finnish state supports persons at low income with different subsidiaries managed by Kela. What most ignore though is that people in particular financial trouble can also be eligible for a special tax deduction. It is called deduction for reduced capacity to pay taxes.

Who can claim the deduction for reduced capacity to pay taxes?

The deduction for reduced capacity to pay taxes is for families and private persons whose income and means have been severely reduced by for example:

• Disease
• Unemployment
• Child maintenance obligation

What are the conditions to receive the deduction?

Every case is judged individually by tax authorities in an own appraisal process. Therefore the special deduction cannot be part of your tax-card calculation so that it would reduce your withholding rate.

Whether or not the special deduction can be granted depends on the annual income in the tax year. Here not only the applicant’s income and wealth are relevant, but also the rest of the family’s (spouse and children). Being an invalid or a student as such do not qualify alone for the special deduction, neither does high debt.

High health and medical costs qualify for the special deduction under the following two conditions:

• annual costs are at least €700 for the taxpayer and his or her family, and
• they also reach 10% of the adjusted annual gross income (both earned and capital income)

The maximum tax deduction for reduced capacity to pay taxes is currently 1 400 euros.

Example:

A family with a handicapped under-aged child has a yearly taxable income of less than 29 000 euros. Accordingly the family receives a deduction of 1 100 euros. In practice the taxable income decreases by the deduction amount which results in lower tax liability. If the same family’s taxable income is between 29 000 and 57 000 euros the deduction is 700 euros. There is no deduction for an annual taxable income above 57 000 euros.

How to claim the deduction for reduced capacity to pay taxes?

 You can claim the deduction in MyTax right into the pre-completed tax return.