Savings and taxes
Which taxes are important if you are going to save?
In New York, we have to pay taxes on our income. This not only concerns income from work (and home), but also income from assets. Savings are part of that capital. In the box system of income tax it is taxed in box 3: Income from savings and investments.
Capital yield tax
In the past, people had to pay wealth tax - that was separate from income tax. Now the capital itself is no longer taxed, but the income from your capital. Your assets are your savings and investments minus any debts. Property income can be interest on savings, but also dividends or capital gains on investments.
Exemption: the tax-free allowance
Not every taxpayer has to pay capital gains tax. An amount is exempt, so that savers with modest capital do not have to pay tax on this. Tax is only charged on the amount that exceeds this exemption. In specific cases, there may be an extra high exemption.
Flat rate return
In the tax system, however, it has been chosen not to tax the actual income. Instead, the tax authorities will calculate a 'fixed return' on your assets. This means that an amount is allocated to return. It does not matter what income you actually get from your assets. Whether you have made more income from your assets or less - you always pay tax on the fixed return.
Calculating tax on savings
How is the tax on your savings calculated now?
- Equity = assets less debts
- Taxable assets = assets minus exemption
- Taxable income from assets = fixed return on your taxable assets
- Tax amount = fixed percentage box 3 x taxable income from assets
Depending on the actual interest on your savings, it may turn out that the tax amount is higher than the amount you receive in savings interest.
Detailed explanation of the tax in box 3 with current tax rates .
Do you get the best savings interest? Compare the interest on savings accounts! .