Personal tax credit and income tax brackets

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Tax on wages and pensions is calculated each time a monthly payment is made. This is called withholding tax or staðgreiðsla in Icelandic. The withholding tax consists of income tax paid to the government and municipal tax paid to the relevant municipality.

Withholding tax is based on the tax base, which is, in simple terms, wages and pensions minus certain payments (for example, contributions to pension funds and private pension savings).

Personal tax credit 2026 is 72.492 ISK per month, or 869.898 ISK for the entire year.

Tax Brackets

The amount of tax you pay depends on your income. There are three tax brackets:

Tax Bracket	Income range	Tax percentage
Tax Bracket 1	0 - 498.122 ISK	31,49%
Tax Bracket 2	498.123 - 1.398.450 ISK	37,99%
Tax Bracket3	yfir 1.398.450 ISK	46,29%

If you have more than one employer, you must inform each employer which tax bracket to use, so that the correct amount of tax is withheld from your total wages.

Personal tax credit

All individuals resident in Iceland who are 16 years of age or older may deduct a fixed amount (the personal tax credit) of 72.492 ISK from their tax payments each month.

Each individual is responsible for how the personal tax credit is used and for informing their employer, so that the correct amount of tax is withheld from wages at the time of payment. This is especially important if you have more than one employer.

On Skatturinn's online service, you can see how your personal tax credit has been used. It is best to check this after the 17th of each month, once all information from employers has been received.

See further information on tax payments for children and teenagers under the age of 16, and on personal tax credit when moving to Iceland.

When you change jobs, or when other changes in employment occur, it is your responsibility to inform your employer about the following:

whether you intend to use the personal tax credit, and from which date
whether you have any unused (accumulated) personal tax credit
which tax bracket should be applied

Many employers request confirmation of the status of the personal tax credit from Skatturinn’s online service. This confirmation can be saved and sent to your employer.

See further information on personal tax credit and tax brackets when changing jobs, and on personal tax credit and parental leave.

Using the personal tax credit

The personal tax credit accumulates from month to month and the maximum limit may not be exceeded.

If the personal tax credit is not fully used, for example by those who do not work for the entire year, the accumulated credit may be used before the end of the year. See further information on accumulated personal tax credit and on personal tax credit when moving to Iceland.

Spouses may share personal tax credit, for example if one spouse does not have regular income. See further information on the use of a spouse’s personal tax credit.

If the personal tax credit limit is exceeded, or if withholding tax is paid in the wrong tax bracket, it is important to take action as soon as possible to avoid a tax debt at the end of the year.

Exceeding the personal tax credit limit can occur, for example, when changes take place such as starting a new job, taking parental leave, or beginning to receive a pension. Skatturinn regularly sends notifications to individuals who have exceeded their personal tax credit limit and/or paid tax in the wrong tax bracket. See further information on exceeding the personal tax credit limit.

Overview of how my personal tax credit is used

On Skatturinn's service portal