Module 220 min2130 wordsFree — no account
The tax wedge cut: tax-free sum, extra credit and supplementary payment
The module’s worked examples, then cases to attempt before revealing their solution · 3 sections · 280 words · 3 min
Worked example
A hundred euros that cost dear
On 8,500 euros of employment income the tax-free sum is 8,500 × 7.1% = 603.50 euros. On 8,600 euros the whole income moves to 5.3%: 8,600 × 5.3% = 455.80 euros. A hundred euros more in wages costs 147.70 euros of tax-free sum. The same happens at 15,000 euros.
Worked example
Six months in work
Sara works from July to December and earns 9,000 euros, with no other income. Scaled to a full year her employment income is 18,000 euros, so 4.8% applies, not the 5.3% that 9,000 euros would suggest. Her tax-free sum is 9,000 × 4.8% = 432 euros.
Practical case
Chiara and Luca in the same shop
Chiara and Luca work all year in the same shop, with no other income and no main-home income to take into account. Chiara's employment income, which is also her total income, is 14,000 euros. Luca's is 34,000. Which wedge cut benefit is each of them entitled to, and how much is it worth?
Hint: For each of them look at total income first: below or above 20,000 euros. Then find the band and apply the percentage or the ratio.
Show the solution
Chiara: total income of 14,000 euros, below 20,000, so the tax-free sum applies. Her employment income is above 8,500 and not above 15,000 euros: the percentage is 5.3%. Sum: 14,000 × 5.3% = 742 euros, which stays out of taxable income. Luca: total income of 34,000 euros, between 32,000 and 40,000, so a reduced extra credit applies. Ratio: (40,000 − 34,000) / 8,000 = 0.75. Credit: 1,000 × 0.75 = 750 euros, for a full year of work.
Answer: Chiara: a 742 euro tax-free sum; Luca: a 750 euro extra credit
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