Gross Income
Your gross salary is your salary before you have paid taxes, different contributions and set off your deduction.
What is gross income?
Gross salary is your entire salary before taxes, contributions and deductions. Thus, it is the sum paid by your employer but not the sum you receive. When you receive your salary, your taxes, contributions to public pensions, unemployment benefits and other social security services have already been subtracted.
The taxes you pay for your gross salary varies depending on your income, your municipality and other financial circumstances such as debt and deductions. In Denmark, the unemployment benefit contribution is always at 8 %, while the remaining taxes can vary between 35 and 41 % of your salary. Any possible bonuses you receive as part of your salary will also be taxed. These could include free telephony, training, participation in events and more.
When negotiating your salary, your gross salary will always be the starting point for you and your employer. This is, because your employer does not know your private financial and tax-related situation. Therefore, any further negotiations regarding bonuses or a new salary will always be based on your gross salary.
You can always see your gross salary on your paycheck. It will typically be placed at the top, since other bonuses, contributions and deductions are often calculated based on it. You will also find it in your employment contract, regardless of your form of employment.
What is the difference between gross and net income?
Your gross salary is your salary before different contributions and taxes are subtracted from your income. Hence, this is the salary your employer actually pays you. Your net salary, is the sum you receive. It is the actual salary you receive on your bank account. This means, that you will never receive your full gross salary, since you have to pay taxes and contributions before that.
Gross salary schemes
Gross salary schemes refers to schemes where your salary decreases and you instead receive employee benefits from your employer. This could include free telephony, broadband, massage, fitness gym membership, meals, training, newspapers etc.
Therefore, you also have to pay taxes on these goods, even though you do not receive a actual sum in payment.
Gross salary and pension
Only your own pension contribution is included in your gross salary. Typically, your employer pays approximately two thirds of your pension, while you pay the remaining one third. The pension is calculated as a percentage of your salary. However, it depends on your agreement, how high that percentage is. If you pay into an installment pension, you will receive a deduction of up until DKK 55,900,- in 2019. It will automatically be subtracted, which you can see in your annual tax return.
In 2018, the new pension reform went into force in Denmark. It has an effect on your employment income tax deduction, which is closely related to your gross salary. If you had an earlier annual income of DKK 350,000,- and paid DKK 30,000,- into your pension, your employment income tax deduction is calculated based on the remaining DKK 320,000,-. This is no longer the case, since your employment income tax deduction is now calculated from your gross salary.
Read more on taxation rules for the pension here.
