To determine the withholding tax base on an annual basis, all payments in a year are totaled up and divided by the number of tax days. This procedure yields an average base from which the withholding tax rate is taken and applied to all periods. In the case of a standard tax rate, the employee pays less tax if payments fluctuate. This calculation type balances out differences. However, it is very complex, as each time, all periods must be taken into account for the calculation.

The following is an example: The gross monthly wage amounts to 5,000 SFr and a withholding tax percent of 1% for each 1,000 SFr is applied.

For January, the gross monthly wage is multiplied by the corresponding withholding tax percentage.

5,000 (wage) x 360/30 = 60,000 SFr (projected annual earnings)

60,000 / 12 = 5,000 SFr (average monthly wage) -> 5% withholding tax percentage

5,000 (multiplied by) 5% = 250 SFr

Result: The withholding tax amount for January is 250 SFr.

With the annual calculation, the wage totals are cumulated and an average is formed. The withholding tax already deducted in the previous periods is subtracted from this average.

In February, the employee is paid a bonus of 5,000 CHF in addition to the monthly wages. Thus, the cumulation for January and February yields the amount of 15,000 SFr:

5,000 (Jan.) + 5,000 (Feb.) + 5,000 (Bonus) = 15,000 + 5,000 (Bonus) = 15,000

To calculate the withholding tax base, the total of all payments is multiplied by the monthly base (30) and divided by the number of withholding tax days (30 days for each month):

15,000 x 30 / (2 x 30) = 7,500 -–> Withholding tax rate is 7.5 %

Thus, the withholding tax to be applied is 7.5 % for the cumulated total wage of the periods January and February. The wage that determines the rate is then multiplied by this cumulated withholding tax rate.

15,000 x 7.5% = 1,125

The employee had already paid withholding tax for the previous month (January). Thus, the amount of the paid withholding tax must be subtracted.

1,125 – 250 = 875

Result: The withholding tax amount for February is 875 CHF.

In the canton Vaud (VD), increased one-time payments are taxed separately. To determine the tax rate, the monthly payments are projected to an annual income. The increased one-time payment and the increased one-time payment are added together. Thus, one-time payments increase do not raise the taxation rate as much as regular payments in the same amount. However, one-time payments must be fully taxed.

The employee receives a wage of 5,000 for January. Therefore, the average annual wage is 5000 x 360/30 = 60,000 SFr.

The average monthly wage (60,000 / 12 = 5,000 SFr) yields a withholding tax rate of 5%. Thus, the withholding tax for January is 250 SFr (see example a)).

In February, the employee receives a one-time bonus in addition to his or her monthly wages. The bonus is in the amount of 10.000 SFr. The average annual wage is calculated by forming the sum of all monthly wages and multiplying this cumulated amount by the annual basis (360). This amount is then divided by the number of days liable for withholding tax (for each month – in February 30 x 2):

5,000 (Jan) + 5,000 (Feb) + 10,000 (amount of one-time payment) = 20,000 x 360/60 = 120,000 SFr

In the next step, the one-time payment is added to this amount:

120,000 + 10,000 = 130,000 SFr

The average monthly wage (130.000 / 12 = 10833,33 SFr) yields a withholding tax rate of 10,83 %.

20.000 x 10.83% = 2,166 SFr

The withholding tax that was paid in January must be subtracted from this amount:

2,166 - 250 = 1,916 SFr

Result: The withholding tax for February amounts to 1,916 SFr.

• From the month subsequent to the month in which the increased one-time payment was made, the increased one-time payment no longer factors into the cumulation of the monthly wages. However all other wages or smaller one-time payments must be accounted for.

If the employee receives a smaller one-time payment in March (or later), all monthly wage from January to the corresponding month and all smaller one-time payments must be cumulated. However, the increased one-time payments are not included in the cumulation. This must be added to the average annual wage that is recalculated in each period by the procedure outlined above.

If the employee is employed for the entire year, there is no change in the tax that is deducted. An entry or leaving reduces the amount of taxes.