Withholding tax on wages (forskuddstrekk)

Forskuddstrekk is the Norwegian system of withholding tax on wages, in which employers deduct tax from employees' pay before it is paid out. It is broadly comparable to PAYE in the United Kingdom. It means that the tax is paid on a running basis through the year, and helps to ensure that the employee does not face a large tax bill at the end of the year. The employer's responsibilities include deducting the correct amount, transferring it to a dedicated tax withholding account, and reporting it to the Norwegian Tax Administration (Skatteetaten).

How does forskuddstrekk work?

Forskuddstrekk involves several steps that ensure tax is deducted and reported correctly:

1. Obtaining the tax deduction card: The employer retrieves the tax deduction card (skattekort) electronically from Skatteetaten in order to establish how much tax is to be deducted from the employee's pay.
2. Calculating and deducting tax: Using either the table-based deduction or the percentage rate stated on the tax deduction card, the employer calculates how much tax is to be deducted. That amount is transferred to a tax withholding account (skattetrekkskonto) before it is paid over to Skatteetaten.
3. Reporting to Skatteetaten: The employer must report all withholding and all wage payments through the monthly a-melding (the payroll report). This ensures that Skatteetaten receives correct information about income, employment relationships and tax deducted.

Why does forskuddstrekk matter?

• Ensures the right amount of tax: Forskuddstrekk ensures that the employee pays the right amount of tax through the year, which minimises the risk of a large underpayment of tax at the end of the year.
• Simplifies the tax settlement: By deducting tax on a running basis, the tax settlement becomes simpler and more predictable for both employer and employee.
• Required by law: As an employer in Norway you are required to operate forskuddstrekk, to set up a tax withholding account, and to report correctly to Skatteetaten.

Example of forskuddstrekk

Suppose an employee has a monthly salary of NOK 30,000, and the tax deduction card states a tax rate of 25%. The employer will then deduct NOK 7,500 in tax from the salary before payment. That amount is placed in the tax withholding account and reported to Skatteetaten through the a-melding.