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19January2021

Annual Tax Return Obligation for Wages

Annual Tax Return Obligation for Wages

Annual income tax returns for 2020 income will be submitted to the relevant tax offices in March 2021.

All incomes subject to annual income tax return should be declared for the following income elements listed in Article 2 of the Income Tax Law. You can find the details for the annual income tax return obligation for wages below:

Components of Income;

  1. Commercial earnings,
  2. Agricultural earnings,
  3. Wages,
  4. Self-employment earnings,
  5. Revenue from real estate, immovable assets
  6. Revenue from securities, movable assets
  7. Other earnings and revenue.

Taxation of Wages

Wage term is defined in the Article 61 of Income Tax Law as below:

"Article 61: Wages are money and goods (cash and non-cash benefits) provided in compensation for services to those who work under an employer and in association with a specific place of business, as well as benefits derived which are capable of representation in terms of money.

The nature of wage would not change the fact that it is paid under such titles as subsidy, compensation, cash benefit, non-cash benefit, raise, fees, per diem, premium, bonus, expense, etc., or by the fact that the earnings are established in the form of a particular percentage."

Based on this, it can be said that all benefits in cash and in kind provided by employers to employees fall under the wage category.

Wage incomes are taxed through withholding per the Article 94/1 of the Income Tax Law. Per the statement, "according to Articles 103 and 104 on wages paid to employees and payments that are specified in Article 61 and are considered as wages (except for those benefiting from the exclusion)".

In the 103rd article of the Income Tax Law, the income tax tariff to be applied for the relevant calendar year is included. The income tax tariff to be applied for wage incomes for the year 2020 is as below:

Income Tax Tariff (For only salary income)

  • 15% up to 22.000 TRY,
  • 3.300 TRY for 22.000 TRY of 49.000 TRY, the surplus is 20%,
  • 8.700 TRY for 49.000 TRY of 180.000 TRY, the surplus is 27%,
  • 44.070 TRY for 180.000 TRY of 600.000 TRY, the surplus is 35%,
  • 191.070 TRY for 600.000 TRY of more than 600.000 TRY, the surplus is 40%

rates are to be applied.

In the article 104 of the Income Tax Law, the tax calculation statements are as below:

"Annual Income Tax is calculated by deducting the deductions in Article 31 from the yearly total income subject to taxation and by applying the rates in Article 103 (income tax tariff).

Monthly tax is calculated by dividing the yearly tax by 12, and daily tax by dividing the monthly tax by 30."

According to all these statements, employers calculate monthly income taxes on wage incomes per the tariff of the relevant year and declare it to the Tax Office via the monthly Withholding and Premium Service Declaration.

Related tax deductions (deductions) can be seen in monthly payrolls of employees in accordance with the statement of article 97 of the Income Tax Law. The relevant item is as below:

"Article 97: Employers are obliged to indicate the taxes in payrolls which withheld in accordance with Article 94 from wages."

Annual Income Tax Return

Per the Article 84 of Income Tax Law, the income taxes are declared with the below methods:

"Types Of Tax Declarations

Article 84: Income Tax declaration can be submitted by:

  1. Annual Declaration
  2. Monthly Withholding Tax Declaration
  3. Individual Declaration"

Per the same Article, the definitions of annual and monthly withholding tax returns are as below:

"1. The annual declaration is submitted to consolidate the earnings and revenue generated in one calendar / tax year.

2. The monthly withholding tax declaration (monthly withholding and premium service declarations) includes the taxes deducted by the employer (or other relevant parties) and submitted to the Tax office by the employer. (or other relevant parties)"

As mentioned above, monthly income tax deductions are declared by the employer on a monthly basis with the Withholding and Premium Service Declaration.

However, in some cases, wage income may also need to be declared in the annual income tax return.

For wage incomes taxed via monthly withholding outside the framework of the following statements in Article 86 / b of the Income Tax Law, an annual income tax return will be required:

"The wages not exceeding the amount included in the fourth income bracket of the tariff written in Article 103, which were taken from a single employer and taxed by monthly withholding and wages taxed by monthly withholding (excluding the wages of employees who receive wages from more than one employers and the gross annual total of whose wages exceeds TRY 49,000)"

The details of the subject are included in the General Communiqué dated 27.05.2020 and serial number 311 published by the Revenue Administration. You can click the link for the details.

Per that Communique, an annual income tax return should be submitted for the income taxed via withholding in the below cases:

  • In case of total income amount of taxpayers, who receive salary income from a single employer, exceeds the amount indicated in the fourth income bracket (600.000 TRY for 2020) of the tariff written in the 103rd article,
  • In case of total income amount of taxpayers, who receive salary income from more than one employer, exceeds the amount indicated in the fourth income bracket (600.000 TRY for 2020), including the income received from primary employer,
  • In case of taxpayers', who receives income from more than one employer, total income received from the secondary employers exceeds the amount in the second income segment of the income tax tariff (49.000 TRY for 2020),

salary incomes should be declared via annual declaration.

With regards to the above; total income tax base should be taken into account.

You can review the details about the annual income tax return obligation on our announcement via the link.

How to Submit an Annual Income Tax Return?

First of all, it should be noted that the annual income tax return is the responsibility of the individuals / employees and the employers do not have any obligations in this regard.

Employees who earn wage income can follow the below steps if they meet the above-mentioned conditions:

  1. Employees will apply in person to the Tax Office and set up a tax registration account for the annual income tax return (wage income).
  2. Taxpayers who wish to submit their annual income tax return electronically can apply to the Tax Offices and request the E-Declaration portal username & password.
  3. The tax returns can also be submitted with E-Government password.
  4. All payrolls for the year 2020 must be collected.
  5. If there is an income other than wages for 2020 (rent, etc.), the relevant income information should also be ready for declaration.
  6. Documents regarding education and health expenses paid by individuals for the year 2020. (For education expenses, it should be received from the education institution that is a corporate taxpayer, and for health expenses, these should not be covered by the insurance company)
  7. Based on the information collected, the details of wages (other income, if any) and taxes withheld during the year should be written in the relevant places in the declaration and the return should be submitted to the tax office.
  8. If a declaration is submitted through the E-Declaration portal, the relevant income details should be entered in the relevant sections and the declaration should be submitted through that online portal.
  9. The relevant income tax amount must be paid based on the accrual receipt received after the declaration is submitted.

Discounts / Expenses on Annual Income Tax Return

The below discounts can be used on the declaration. You can also find below the details for the most commonly used expenses which are life / health insurance premiums and education & health expenditures.

  • Life / personal insurance premiums,
  • Education and health expenditures,
  • Disability discount (Employees who has an obligation to take care of a disabled person can also benefit from this discount.)
  • Donations and aids that can be deducted limitedly from the declared income and donations and aids that can be deducted totally,
  • Sponsorship expenses,
  • Donations in kind and in cash made to aid campaigns initiated by the President,
  • Donations and aids in cash against receipt to the Red Crescent Society and Green Crescent Society,
  • Individual participation investor discount,
  • Donations and aids that will be fully discounted according to other laws.

Life / Personal Insurance Premiums

Per the statements in the Income Tax Circular No. 85 dated 25.10.2012; the insurance premiums that should be paid to an insurance company in Turkey, can be deducted on the annual income tax return with the below conditions:

  • 50% of the premiums paid by the employee for life insurance policies where the savings premium of the employee, spouse and young children are collected.
  • Total of the premiums paid by the employee for personal insurance policies such as death, accident, health, illness, disability, unemployment, maternity, birth and education.

Education and Health Expenses

These expenses can be deduced up to a limit of 10% of the income declared with the below conditions:

Education and health spending should be done in Turkey. It must be documented and the documents should be obtained from corporate taxpayers in Turkey. The said expenditures should be related to the taxpayer himself, spouse and young children.

Examples

Question; The relevant employee has an income of 680,000 TRY from a single employer.

Answer; The wage income obtained from a single employer and taxed through withholding is over 600,000 TRY. The declaration should be submitted.


Question; What will happen if 580,000 TRY is earned from workplace X and 30,000 TRY from workplace Y?

Answer; Since the total wage income is 610,000 TRY and is over 600,000 TRY, the total wage income should be declared via the annual income tax return and the taxes deducted during the year can be deducted on the declaration.


Question; What will happen if 500,000 TRY is earned from workplace X and 50,000 TRY is earned from workplace Y?

Answer; the total wage income is 550,000 TRY, below 600,000 TRY, however, the wage income obtained from the second employer is over 49,000 TRY, so, the total wage income should be declared via annual income tax return and the taxes deducted during the year can be deducted on the declaration.


Question; What will happen if a wage income of 40,000 TRY is obtained from workplace X and 50,000 TRY from workplace Y?

Answer; The total wage income is 90,000 TRY, below 600,000 TRY and the wage income obtained from the second employer (if we consider X workplace) is below 49,000 TRY. Therefore, there will be no need to submit a declaration.


Question; How to proceed for 60,000 TRY rental income (from house) as well as 700,000 TRY wage income from X workplace?

Answer; Since the wage income from a single employer is over 600,000 TRY, it should be declared together with the rental income from the house. Calculation can be done as follows:

Wage Tax Base 700,000.00
Withholding Tax 231,070.00
Rental Income (house) 60,000.00
Lump-sum rental expense (60000*15%) 9,000.00
Rental Tax Base (60000-9000) 51,000.00
Total Tax Base (700000 + 51000) 751,000.00
Calculated Income Tax Amount 251,470.00
Withholding Tax (-) 231,070.00
Income Tax to be paid 20,400.00

For the details of the declaration obligation regarding wage income, we also recommend you review our article on the link.

Should you have any queries or need further details, please contact us.

Written by Erdoğdu Onur Erol, Posted in Social Security Law and Legislation, Labor Law

  • Notification!

    Contents provided in this article serve to informative purpose only. The article is confidential and property of CottGroup® and all of its affiliated legal entities. Quoting any of the contents without credit being given to the source is strictly prohibited. Regardless of having all the precautions and importance put in the preparation of this article, CottGroup® and its member companies cannot be held liable of the application or interpretation of the information provided. It is strictly advised to consult a professional for the application of the above-mentioned subject.

    Please consult your client representative if you are a customer of CottGroup® or consult a relevant party or an expert prior to taking any action in regards to the above content.

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