Right to deduct trade union membership fees in taxation
The right to deduct trade union membership fees in taxation means that when union members pay their membership fees, these are deducted from their taxable income. Tax-deductibility is the right of the member, not of the trade union.
What is the tax deduction right based on?
Trade union membership fees can be deducted in taxation because they are expenses for the production of income. The reason for this is that trade unions negotiate collective agreements, among other things, and look after workers’ rights at workplaces.
The regulations on deductible labour market organisation membership fees and unemployment fund contributions as expenses for the production of income are in the Income Tax Act ( Sections 31 and 95).
If a membership fee has been paid merely to support an association, it is not deductible. If a fee is considered necessary for conducting an occupation or business or is otherwise an expense incurred by the production of income, then it is deductible.
Labour market organisations are organisations whose main task is to reach binding agreement between parties in collective agreements or other conditions applying to employment relationships. Examples of labour market organisations listed by the Tax Administration include: SAK, STTK, Akava and employers’ federations that are members of EK.
PAM, for example, negotiates minimum working conditions in various sectors with the employers’ federations that companies comply with. PAM and the employers’ federations advise their members on how to comply with the agreements and resolve disagreements if these cannot be sorted out at the workplace.
PAM reports membership fees to the tax office
The deductibility of trade union membership fees is not included in the deduction for the production of income that is made automatically by the tax office – it is in addition. PAM reports membership fees paid by members to the tax office annually. Therefore they are generally pre-completed when employees receive their tax proposal.
What is meant by tax deduction?
A tax deduction means the amount that decreases taxable income or the amount of tax. For members, the tax-deductibility means that the income that income tax is calculated on decreases by the amount of the membership fees. The tax charged is the part of that income corresponding to your tax percentage.
The trade union membership fee is 1.5% of gross pay, so if a member’s pay is around 2000 euros a month, they pay 375 euros a year in membership fees. When that amount is deducted from taxable income, the tax payable is around 110 euros less than without the deduction. This means that the net membership fee payable is around 265 euros.
You can see how union membership fees affect your taxation using the tax percentage calculator on the Tax Administration website.
You can what you will pay in PAM membership fees using the membership fee calculator (in Finnish).