Taxation of Wage Income

Amendment to the Income Tax Law Makes Significant Changes Regarding the Taxation of Wages. In Order to Avoid any Errors, Income Tax Returns to Be Issued in March Must be Filled in Consideration of These Amendments.

Dear Fortune readers, I would like to hereby share with you my assessments regarding the taxation and declaration of wages.

Today, many company executives earn wage income from one or more employers under the names of salary, annual bonus and honorarium, etc.  Payment of the wage as an allowance, compensation, cash indemnity (financial liability indemnity), allocation, pay raise, advance payment, contribution, honorarium, premium, bonus, provision expense or under any other name whatsoever or the determination thereof as a percentage of the income on the condition that it does not constitute any partnership relation does not change the true nature thereof.

The amendment made Article 86/1-b of the Income Tax Law No. 7194 brought considerable amendments to the taxation of wage income. Therefore, the declaration of these wages earned by those who earned wage income in 2020 has also changed compared to the previous years.

According to the former practice, if the sum of the wages of taxpayers who earn wage income from more than one employer following the first employer exceeds the amount included in the second income bracket of the income tax tariff (TRY 49,000 TL for 2020), the said wages were declared. However, irrespective of the amount from a single employer, the wages obtained were not subject to declaration. For instance, a person earning a wage income of TRY 540,000 from the first employer in 2020 was not obliged to declare this wage income in the event that s/he earned a wage of TRY 40,000 from the second employer. However, the new regulation in effect from 2020 provides that the taxpayers earning wage income from multiple employers must declare this wage income if the sum of their wages including the wage income they earn from the first employer exceeds the amount included in the fourth income bracket of the income tax tariff (TRY 600,000 for 2020).  Moreover, the wages that are earned from a single employer and were previously not subject to declaration irrespective of the amount thereof must be now declared if they exceed the amount included in the fourth income bracket of the income tax tariff (TRY 600,000 for 2020).  Therefore, if the sum of wages earned from one or multiple employers exceeds TRY 600,000 for 2020, it is mandatory to declare it in the Income Tax Return to be submitted in March 2021. In the respective return, the taxes paid by way of deduction within the year can be offset from the tax calculated in the return. As for the declaration of the wage income earned from a single employer, if the taxpayer does not have any other income subject to declaration, no additional tax will accrue following the deduction of the taxes paid by way of deduction within the year from the taxes calculated as the same tax bracket is used. However, if the person earning wage income also has income such as rent and security income, such income will be added onto the wage income and thus, the respective income may be taxed at a higher ratio.

As for the determination of the tax base in the income tax return to be submitted regarding the wage income, it is not possible to make other deductions such as life/individual insurance premiums, education and health expenses, sponsorship expenses, donations and aids. If any tax rebate emerges following the said deductions, I would like to remind you that one may apply to the affiliated tax office for this rebate.