The idea of individual taxation

Initial situation

According to the current legal situation, married couples are subject to joint taxation, which means that the income and assets of both spouses are added together and serve as the basis for determining the tax rate. Unmarried couples, on the other hand, are taxed individually, i.e. one person's income is taxed separately. Due to the progressive tax rate system for income tax that applies in Switzerland (= the higher the income, the higher the tax rate), married couples are at a tax disadvantage compared to unmarried persons, even if they basically have the same economic capacity (so-called marriage penalty).

Furthermore, if the couple does not opt for the classic sole earner model, but both spouses work, the lower (second) income is again penalized for tax purposes due to the progression effect. The income of the second earner is taxed at a significantly higher rate than would be the case with individual taxation. As the majority of second earners are women, they have little incentive to increase their employment under the current legal framework.

The current taxation of married couples not only leads to inequalities compared to unmarried couples, but the marriage penalty is also unconstitutional because the current taxation of married couples effectively disregards the economic capacity of married couples.

To counteract this marriage penalty, Parliament included the issue in its 2019-2023 legislative planning in the 2020 autumn session by adopting a Federal Council dispatch on the introduction of individual taxation. In autumn 2022, the federal popular initiative "For individual taxation regardless of marital status (Tax Fairness Initiative)" was also submitted to the federal government by the "Individual Taxation" association.
The "Tax Fairness Initiative" of the "Individual Taxation" association aims to ensure that natural persons are taxed regardless of their marital status by means of a new article in the constitution.

A consultation procedure on the Federal Act on Individual Taxation took place in December 2022. Based on the consultation and the consultation draft, the Federal Council adopted an indirect counter-proposal (Federal Act on Individual Taxation) to the submitted initiative on individual taxation on February 21, 2024. The key points of the indirect counter-proposal are presented below.

The Federal Council's indirect counter-proposal

With the indirect counter-proposal to the submitted initiative on "individual taxation", the Federal Council proposes that the issue of individual taxation should not be resolved at constitutional level, but at legislative level. With its counter-proposal, the Federal Council is therefore not fundamentally opposed to the introduction of individual taxation, but would like to implement the objective by means of a direct legislative proposal. In this way, the goal of individual taxation can be achieved more quickly than via the "detour" of a constitutional mandate. The indirect counter-proposal also fulfills Parliament's mandate (introduction of individual taxation in the 2019-2023 legislative planning, see above).

With the indirect counter-proposal, the Federal Council advocates taxation independent of marital status (purely individual taxation) at all three levels of government and two separate tax returns. This would eliminate the marriage penalty. In addition, there are further key points for direct federal tax:

Initially, income and assets will be divided according to civil law. In addition, according to the Federal Council's proposal, the child deduction for direct federal tax will be increased to CHF 12,000 (previously CHF 6,700) and divided equally between the parents. The direct federal tax rate will also be adjusted: The tax rates for low and middle incomes will be lowered, the basic tax-free allowance will be increased and the amount at which the maximum rate of 11.5% is reached will be reduced.

Impact of the proposal

According to the Federal Council, the greatest relief will be for married couples with roughly the same income. The rate adjustment would primarily provide relief for unmarried couples without children. Although the current privileged rate for single parents would no longer apply, this "loss" would also be compensated for by the increased child deduction and rate adjustment. The introduction of individual taxation would only lead to an additional burden for married couples with only one income or a low second income and for unmarried couples with children in the upper income bracket. In an overall assessment, however, the tariff adjustment would lead to a significant reduction in the burden, particularly with regard to the lower and middle income brackets.

The cantons are free to design individual taxation in accordance with the Federal Council's proposal, although implementation must take place within 10 years.

Outlook

Parliament has until March 8, 2025 to make a recommendation on the "individual taxation" popular initiative. During the consultation on the federal law on individual taxation, many cantons already expressed criticism. In particular, they emphasized that numerous suitable measures for the taxation of married couples have already been implemented at cantonal and communal level, such as the so-called "splitting" or "partial splitting" of income. For this reason, the cantons consider the introduction of purely individual taxation to be superfluous.

It now remains to be seen how Parliament will incorporate these concerns into its decision and what position it will ultimately take on the popular initiative and the Federal Council's indirect counter-proposal. It is possible that the indirect counter-proposal is merely the beginning of a further, detailed discussion on the introduction of individual taxation in Switzerland.