Shorter working hours can lower tax bill, expert says

Shortening working hours can reduce the tax rate and partly offset a drop in pay, Yle reports.

Päivi Ylitalo, a senior tax inspector at the Finnish Tax Administration, said people who reduce their working hours should estimate their income for the rest of the year and apply for a new tax card based on that estimate. Total annual income and any deductions affect the tax rate.

If the income estimate falls, the tax rate may also decrease, partly compensating for the lower salary.

People approaching retirement age may receive an additional benefit. If they reduce their workload during their final working years and begin drawing a pension to compensate for lost earnings, their overall tax burden will decrease even if their total income remains unchanged. This is because they can use both the earned income deduction and the pension income deduction.

Ylitalo warned that the tax card must be updated again if someone works additional hours after reducing their working time. This is particularly important for people working for several employers, to ensure that they pay enough tax.

She said working situations and salaries can change during the year, especially when the full-year situation is unclear at the beginning of the year. The tax card should therefore be kept up to date and revised whenever circumstances change, in either direction.