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A tax deduction card provides information for an employer to assist with tax deductions and payroll preparation. Such cards may be prepared on the basis of information provided by employees, or can be issued by tax offices, depending on regional regulations. In nations that use this system, a tax deduction card may be required to receive paychecks, or employees could be subject to a very high default tax rate until they file a card. The system for getting one can depend on the country, and people preparing to work overseas may want to consult an accountant to determine if they need to take any specific steps.
In countries like Norway and Denmark, the tax deduction card is issued by a local tax authority. The government uses information it maintains on taxpayers to determine how much money someone should be allowed to earn before paying taxes, and what a worker’s tax rate should be. People must apply for a card, and should verify the information used to generate it, to make sure it is correct. For example, a tax deduction card might not take an expense into account, or could include an inaccurate income estimate.
The card should discuss someone’s tax rate, to allow people preparing payroll to determine how much to withhold from each paycheck. When people file tax documentation at the end of the year, they can declare the total amount withheld and determine whether they should receive a refund, or pay more. Unexpected jumps in earnings can result in moving to a higher tax bracket or simply owing more in taxes because more money was earned, although companies are responsible for trying to keep withholding as accurate as possible.
Human resources or accounting departments keep a tax deduction card on file. Employees can ask to see it, along with other documentation, to confirm its accuracy. They are also responsible for updating information if it changes, which may occur with a change of address or other life events. When people move to new companies, they also need to make sure a new tax deduction card is filed or generated internally with forms filled out by the employee.
Electronic tax deduction cards are available in some regions. These can reduce the risk that information will be lost or misplaced, and also make it easier to transmit tax information. In countries that use electronic systems, new cards may be issued electronically by default, slowly converting the system to a digital format.