Entrepreneur: Keep These Things in Mind When Deducting YEL Contributions in Taxation

Entrepreneurs’ pension insurance (YEL) contributions are fully tax-deductible. When YEL contributions are deducted in taxation, the actual cost of the insurance is lower than the original amount paid.

You can deduct your YEL contributions either in your own or your spouse’s personal taxation, or alternatively in your company’s taxation. These are important points to consider when planning the tax deduction.

As an entrepreneur, you must take care of deducting YEL contributions yourself

In practice, you claim the tax deduction for YEL contributions on your tax return. The easiest way to do this is electronically via the Finnish Tax Administration’s Omavero service. Pension insurance companies do not transfer any information on YEL contributions to the Tax Administration, so as an entrepreneur you must enter the information yourself on your tax return.

If the company pays your YEL contributions, they are deducted as business expenses in the company’s tax return

From an accounting perspective, it is usually easiest to notify the pension insurance company that the payer of the insurance contributions is the party in whose taxation the deduction is made. When YEL contributions are deducted as expenses of business activity, they reduce the taxable income from the business.
It is important to note that only mandatory pension insurance contributions can be deducted from business income.

If you pay YEL contributions yourself, you can deduct them either in your own or your spouse’s tax return

If you have paid your YEL contributions yourself, you can choose whether to deduct them in your own or your spouse’s taxation. Usually, it is advisable to deduct the contributions in the spouse’s taxation if they have higher earned income and therefore a higher tax rate. In personal taxation, the benefit gained from the deduction corresponds to the individual’s earned income tax rate.
If you report your spouse’s YEL or MYEL insurance contributions as a deduction, or your spouse claims your YEL or MYEL contributions as a deduction, this must be done before the taxation of both you and your spouse is finalized.
The right to deduct YEL contributions also applies to light entrepreneurs who have YEL insurance.

As a sole trader, you have three different deduction options

A sole trader can deduct YEL contributions either:

• in the business tax return,
• in their personal tax return, or
• in their spouse’s tax return. 

The deduction can only be made once, meaning you cannot claim YEL contributions as a deduction both in the business tax return and in the pre-completed personal tax return. As a sole trader, you receive a five per cent entrepreneur deduction on your business income from the Tax Administration. Deducting YEL contributions as business expenses reduces your business income, which in turn also reduces the amount of the entrepreneur deduction. A deduction made in personal taxation does not affect the entrepreneur deduction.

You can assess different options using a tax rate calculator

The effects of different deduction methods depend on your other income, deductions, and company form. You can evaluate the impact of different deduction methods on your total income using the Finnish Tax Administration’s tax rate calculator.

Read more about deducting YEL contributions in taxation on the Finnish Tax Administration’s website (in Finnish).

Read more about YEL contributions.
Take out YEL insurance with Elo.