On 6 April 2020, the Swiss Federal Tax Administration published the Circular on the tax treatment of benefits under the Ordinance on Measures for Loss of Earnings in Connection with the Coronavirus.
The FTA states that compensation for loss of earnings in connection with the coronavirus in accordance with the COVID 19 Ordinance on Loss of Earnings (i.e. Compensation to employed or self-employed parents who have to interrupt their employment due to the loss of third-party care for their children or quarantine, and compensation to self-employed persons who suffer loss of earnings due to the ban on events or closure of businesses) are subject to income tax in accordance with Art. 23 letter a DBG (replacement income) and Art. 84 para. 2 DBG.
Depending on the beneficiary, compensation is taxed either in the ordinary assessment procedure (persons subject to ordinary taxation) or in the withholding tax procedure (persons taxed at source).
In the case of taxation in the withholding tax procedure, the paying AHV compensation fund deducts the withholding tax from the compensation. For practical reasons, the AHV compensation fund uses the standard tariff code D. This also applies to cross-border commuters from Germany, for whom the lower tariff according to tariff code O would actually apply. Excessive withholding tax levied must be refunded by the cantonal tax authorities upon application by the taxpayer. The application must be submitted to the assessment authority by the end of March of the calendar year following the due date of the benefit.
The AHV compensation funds will report the compensation paid to the cantonal tax authorities.
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