Taxation on benefits in the case of loss of income

The Federal Tax Administration has just published a Circular on the tax treatment of benefits in the case of coronavirus-related loss of income.

In brief, any daily benefit allowances qualify as income, and therefore as taxable allowances which are subject to either ordinary income tax (under Article 23 letter a FITA) or tax at source (Article 84 paragraph 2 FITA). These benefits replace employment income and must therefore be taxed in the same way.

The income allowances should be taxed according to one of the following two systems, depending on the situation of the beneficiary :

1. Procedure for ordinary taxation

• Daily income allowances must be declared in the "compensation for loss of income" section of a tax return;
• This income will be added to the any other income to determine the taxpayer’s total income and tax rate.

2.  Procedure for taxation at source

• If recipients of daily income allowances were subject to tax at source on their employment income up to the time of payment of income allowance, then the relevant compensation fund entities will exceptionally apply schedule D (flat rate) of tax at source ;
• The tax at source correction and the subsequent taxation procedure remain possible;

The AHV compensation fund entities responsible for the payment of daily income allowances must provide the cantonal tax authorities with a list of all recipients of those allowances no later than 31 January of the calendar year following the year in which the allowances are paid.