Income Taxation of Natural Persons: Concrete Methods of Calculation

Abstract

Personal income taxation is a complex process that involves several stages. In Romania, the income tax system is based on the principle of progressive tax, which means that the higher the income, the higher the percentage rate. The concrete ways of calculating the tax include determining the annual gross income from all sources of income, including income from wages, pensions, dividends, rents and others. After determining the gross income, deductible expenses, such as contributions to private pension funds or other types of insurance, are subtracted from it. These expenses can reduce the amount of gross income and, implicitly, the amount of tax owed.The tax is calculated by applying a percentage rate, which varies according to the income level and is established by law. Then, net income is calculated, i.e. gross income less deductible expenses. The tax owed is then determined by multiplying the net income by the percentage tax rate. In addition, there are also tax deductions for certain categories of income, such as income from self-employment or from investments in start-ups, which can reduce the amount of tax owed. It is important to pay attention to all the details and correctly calculate the tax due to avoid tax penalties.