Self-employed on the side: How to handle taxes and reviews in 2023

In practice, secondary self-employment most often occurs when it comes to running a business while working, during studies, in retirement or receiving parental allowance.

The advantage of secondary self-employment is that the minimum basis for assessment does not have to be observed when calculating social and health insurance, as is the case with the main self-employment. With low profits, taxation from secondary self-employment is therefore low. With a high profit, it is the same as when performing the basic activity.

Low profit from secondary self-employment, total taxation of 6.8 percent – example

Mr. Richard is on a regular old-age pension and during 2022 he generated additional income through secondary self-employment. Gross profit (revenues minus expenses) for 2022 is 90 thousand crowns. Mr. Richard has to complete and submit not only a tax return, but also reports for health insurance and the local OSSZ.

Calculation of income tax

When calculating income tax, Mr. Richard will apply a tax discount of 30,840 kroner, like other taxpayers. Since the taxpayer’s discount is greater than the calculated income tax, Mr. Richard will not pay any income tax.

Calculation of social security

Also, Mr. Richard will not pay anything for Social Security, because the gross profit is up to the limit for not paying Social Security. In the event that the gross profit from secondary self-employment for the year 2022 is lower than 93,387 kroner, then social insurance is not paid. However, it is necessary to submit an overview to the locally relevant OSSZ.

Calculation of health insurance

There is no limit for calculating health insurance. Health insurance is paid regardless of the amount of the realized gross profit. The health insurance rate is 13.5 percent of the actual base, which is half of the tax base. Mr. Richard’s annual health insurance is 6,075 kroner (90,000 kroner x 50 percent x 13.5 percent).

Mr. Richard’s total effective tax rate is therefore only 6.8 percent (ie 6,075 kroner: 90,000 kroner).

Income tax: When self-employed and employees do not pay advance payments?

High profit from secondary self-employment, total taxation of 36.4 percent – example

Mrs. Simona worked for the entire year 2022 on the main employment contract and at the same time had income from a secondary independent activity. Her gross annual salary was 770 thousand crowns. Gross profit for 2022 is 680 thousand crowns.

Calculation of income tax

Mrs. Simona used the tax credit for the taxpayer when calculating the monthly tax advances, so the income tax on the gross profit of 680 thousand crowns is 102 thousand crowns (680 thousand crowns x 15 percent).

Calculation of social security

Mrs. Simone’s gross profit is above the limit, so she will pay 29.2 percent of the actual base, i.e. from the amount of 340,000 kroner (680,000 kroner x 50 percent) to social insurance. The actual valuation basis is higher than the minimum valuation basis.

When calculating the social security, Ms. Simona is in the same situation as if she was performing her main independent activity. Due to the payment of social insurance from employment, there is no relief when calculating social insurance from business. Mrs. Simona will pay 99,280 kroner (340,000 kroner x 29.2 percent) for social insurance from her business.

Calculation of health insurance

Mrs. Simona will also calculate the health insurance for 2022 from the actual basis of 340 thousand crowns. The amount of health insurance does not affect the fact that Ms. Simona has already paid for high health insurance from her job. Business health insurance amounts to 45,900 kroner (340,000 kroner x 13.5 percent).

Ms. Simona will pay 247,180 crowns in direct business taxes (102,000 crowns + 99,280 crowns + 45,900 crowns). The total effective tax rate of Ms. Simone is therefore only 36.4 percent (ie 247,180 kroner: 680 thousand kroner).

According to the mentioned examples, we see that the total taxation of self-employed persons who perform secondary independent activity cannot even reach 7 percent, but at the same time it can be over 36 percent.

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