Exceeding personal tax credit limit
Notifications are regularly sent to individuals who have exceeded their personal tax credit limit and/or have paid withholding tax in the wrong tax bracket. Those who receive such notifications are not paying enough tax through withholding and are likely to end up with a tax debt at assessment if no action is taken.
A notification of overused personal tax credit is a warning, not a demand for payment.
It is important to take action and correct the use of the personal tax credit or have the tax bracket used for withholding adjusted.
Wages are taxed in three different tax brackets, depending on the amount of income. If wages are not taxed in the correct, the correct amount of tax is not paid, and the difference is treated as exceeding the personal tax credit limit.
Check your personal tax credit status
On Skatturinn's service portal, you can see how your personal tax credit has been used. The status is updated as information is received from employers. It is best to look after the 17th of each month, once all information has been received.
The overview shows whether the use of the personal tax credit exceeds the permitted monthly limit.
You can view the permitted maximum usage by month and compare it with your own usage
Responce to exceeding the personal tax credit limit or incorrect tax brackets
First, you should check your personal tax credit usage on the Skatturinn's service portal to see how much the limit has been exceeded. Next, you need to assess your situation and take appropriate action.
Is it because of your wages or your spouse's?
Please note that a notification is sent to both you and your spouse even if only one of you has exceeded the limit.
Is it the personal tax credit or incorrect tax bracket?
If the use of the personal tax credit is correct and matches the payslips, you should check whether tax is being paid in the correct tax brackets. You can see how the personal tax credit has been used in the overview of paid wages and personal tax credit on Skatturinn's service portal.Make corrections
Regardless of whether the excess usage is due to the personal tax credit or incorrect tax brackets, the use of the personal tax credit must be stopped or limited until it is back within the permitted limit. You must inform your employers how you want the personal tax credit to be used so that the total usage does not exceed the annual limit.Correct tax brackets
You must ask your employers to calculate withholding tax using the correct tax bracket (bracket two or three, as applicable).
By taking action, you can reduce the risk that exceeding the personal tax credit limit will result in a tax debt at assessment when the income year is settled (or avoid it altogether).
Having wages from more than one employer
Those who receive payments from more than one employer or pension fund must ensure that the correct tax brackets are applied and consider whether to use the personal tax credit with only one employer.
If your monthly wages exceed 498.122 ISK with one employer, other employers must withhold tax on your wages at the next tax bracket. If your monthly wages exceed 1.398.450 ISK the portion that exceeds that limit is calculated in the third tax bracket.
Is this a debt that needs to be paid now?
If you take action immediately, it is often possible to avoid a tax debt at assessment. If no action is taken, you will not pay enough tax through withholding during the year, which will result in a tax debt at assessment that will be collected with a 2.5% surcharge.
To change the use of the personal tax credit or the tax bracket applied, you must contact your employer and ask for the necessary changes to be made until the usage is back within the annual limit.
Service provider
Skatturinn - Iceland Revenue and Customs