Swiss Payroll Taxes: Source Tax (Quellensteuer) for Foreign Employees

For most Swiss residents, income tax is never deducted from pay. They file an annual return and settle directly with the canton and commune. There is one large exception: foreign employees who do not hold a C settlement permit, together with cross-border workers, have their income tax withheld by the employer straight from each pay slip. This is tax at source, known as Quellensteuer in German and impôt à la source in French.

Source tax is only one layer of a Swiss pay slip. On top of it, every employer also withholds the employee's share of social-security contributions and adds its own employer share. Getting the two systems right, and settling them on time with the cantonal tax office and the social-security funds, is the core of Swiss payroll compliance for any company that hires staff. Every rate below is the 2026 position; the pension-fund thresholds linked to the AHV pension were last adjusted on 1 January 2025 and apply unchanged in 2026.

There is no single federal payroll tax in Switzerland. Instead, an employer withholds two separate things. The first is social-security contributions, which apply to every employee regardless of nationality or permit. The second is income tax at source (Quellensteuer), which applies only to foreign employees who do not yet hold a C settlement permit. Swiss nationals and C-permit holders have no income tax withheld from their wages; they file an ordinary return instead.

That two-part structure is why "payroll tax" is a misnomer here. In the United States or the United Kingdom, a payroll tax is a single levy on wages. The Swiss model splits the job: a social-insurance stack that every salary carries, plus a wage tax that only part of the workforce pays. For a foreign employer the practical question is therefore not "what is the Swiss payroll tax" but "what do I deduct from this particular employee, and where do I send it". The rest of this guide answers both, deduction by deduction.

Two Swiss taxes share the English word "withholding", and conflating them is the single most common payroll mistake. The table below sets them apart.

• Quellensteuer (tax at source): income tax on the wages of certain foreign employees. The rate is variable and read from a cantonal tariff. The employer withholds it from salary and remits it to the cantonal tax office. It is a final settlement for most employees. This is the payroll tax this guide is about.
• Verrechnungssteuer (anticipatory tax): a flat 35 percent federal tax on investment income such as dividends, interest and certain lottery winnings. It is a security deposit that a declaring resident reclaims through the tax return; the refund claim lapses three years after the end of the calendar year in which the income fell due. It has nothing to do with salaries.

Different base, different rate, different administration, different purpose. If you are researching the 35 percent levy on company distributions, that is the anticipatory tax and a corporate matter; our guide to the 35% anticipatory tax (Verrechnungssteuer) covers it in full. Payroll deals only with Quellensteuer.

Every employee, foreign or not, carries the same social-insurance stack. The 2026 rates are as follows.

• AHV/IV/EO (first pillar): old-age, disability and income-compensation insurance, 10.6 percent of gross salary split equally, so the employer withholds 5.3 percent from the employee and pays a matching 5.3 percent. No upper salary ceiling.
• ALV (unemployment): 2.2 percent, shared equally, on salary up to CHF 148,200 a year (AVIG art. 3). Salary above the ceiling carries no unemployment contribution in 2026; a contribution of up to 1 percent on that part returns only if the fund's debt reaches 2.5 percent of insured payroll (AVIG art. 90c).
• BVG/LPP (second pillar, occupational pension): compulsory for employees earning more than CHF 22,680 a year with one employer (BVG art. 7). The statutory minimum insures the coordinated salary, the part of annual salary between CHF 26,460 and CHF 90,720, with a minimum of CHF 3,780 (BVG art. 8). Age credits are 7 percent of the coordinated salary at ages 25 to 34, 10 percent at 35 to 44, 15 percent at 45 to 54 and 18 percent from 55 (BVG art. 16). The employer must fund at least half.
• UVG/LAA (accident): the employer pays the occupational-accident premium; the employee usually pays the non-occupational premium, withheld from salary for staff working at least eight hours a week for that employer (UVV art. 13). Rates depend on the insurer and risk class.
• FAK/CAF (family allowances): set by each canton and paid by the employer. At the cantonal family compensation funds the 2026 rate runs from 1.025 percent of payroll in Zurich to 2.75 percent in Jura; Zug charges 1.35 percent, Geneva 2.22 percent and Vaud 2.37 percent, and Valais adds a 0.13 percent employee contribution to its 2.5 percent employer rate.

The employee's statutory deductions therefore start at 6.4 percent of gross (AHV/IV/EO 5.3 plus ALV 1.1), before the pension contribution and the non-occupational accident premium, which depend on age, the pension plan and the insurer. Our guide to the full social-security contribution system sets out all three pillars, and how BVG occupational pension works explains the coordinated salary and age bands in detail.

Source tax is meant to be the final settlement for most employees, but not for higher earners. Where a source-taxed employee's gross annual employment income reaches CHF 120,000, the canton applies a subsequent ordinary assessment (nachträgliche ordentliche Veranlagung, or NOV; QStV art. 9). The employee then files a full return like a resident, the source tax already withheld is credited against the final bill, and any difference is settled with the tax office. This threshold has applied nationwide since the 2021 source-tax reform, and once triggered the ordinary assessment continues until source taxation ends, even if income later falls below CHF 120,000.

Below CHF 120,000, an employee can request a voluntary ordinary assessment by 31 March of the following year to claim deductions the flat tariff does not give, such as Pillar 3a contributions, commuting or childcare. Since the 2021 reform that choice is irrevocable: the request cannot be withdrawn, and the ordinary assessment then applies every year until source taxation ends (DBG art. 89 and 89a; QStV art. 10). Whether tax at source or a full return works out better is a trade-off between simplicity and deduction recovery, and it depends on the individual's circumstances, so this is a point to model rather than assume. The mechanics of personal liability are covered in our guide to ordinary income-tax assessment.

Before the first salary run, a new Swiss employer typically registers with five bodies: the cantonal tax office for source tax, an AHV compensation office (Ausgleichskasse) for the first pillar, a BVG pension fund, a UVG accident insurer, and the source-tax register for any employee taxed at source. The five registrations are best cleared together, before the first run.

The recurring cycle then has a monthly and an annual rhythm. Monthly (quarterly in some cantons), the employer reports and remits the source tax withheld, keeping a collection commission of 1 to 2 percent of the tax for the work, with the exact rate set by each canton (DBG art. 88 para. 4). Social-security contributions are paid provisionally to the AHV compensation office during the year and reconciled in an annual statement. The 13th salary is ordinary pay, subject to contributions and, for source-taxed staff, annualised in the tariff calculation, though cantonal spreading practice varies. At year end the employer must issue every employee a salary certificate (Lohnausweis, certificat de salaire) summarising gross pay, deductions and benefits in kind, plus a tax-at-source statement for source-taxed staff. Late or missing filings expose the employer to interest, penalties and personal liability. Our guide to hiring your first employee in Switzerland sequences the registration, contract and payroll steps.