Subsistence minimum

What it means

The subsistence minimum is the socially recognised minimum income threshold for an individual, below which a person is in material need. The law sets it separately for an adult, for another adult assessed jointly and for a dependent child, and it is adjusted regularly, usually on 1 July.

The subsistence minimum matters far beyond the welfare system. The Income Tax Act derives from it the personal tax-free allowance, the spouse allowance and the threshold above which the higher income tax rate for individuals applies.

It also determines the amount a debtor must be left with when deductions from wages or enforcement deductions are made, the protected amount. Changes in the subsistence minimum therefore affect both taxes and wages.

How it works in practice

In tax returns and the annual reconciliation we always use the subsistence minimum in force on the reference date set by law. The allowance for a year is calculated from the value at the start of the year, not from changes during the year.

For wage deductions we adjust the calculation of the protected amount whenever the subsistence minimum changes. An employer that deducted more than the law permits would have to repay the difference to the employee.

At the start of the year and in July we update all parameters linked to the subsistence minimum in the payroll system and inform clients about changes that will affect their employees’ net pay.

What to watch out for

Parameters derived from the subsistence minimum change automatically, without a separate law. Anyone calculating tax or deductions using last year’s amounts can easily get it wrong. We therefore check which value applies for every calculation.

Different rules use the subsistence minimum on different dates. Tax calculations use the value at the start of the year, while deductions use the value at the time of payment. Mixing up these dates is a frequent cause of discrepancies.