How to deduct YEL insurance contributions in taxation?

YEL (Self-Employed persons’ pension Insurance) contributions can be a significant expense for entrepreneurs. Fortunately, these payments can be deducted in taxation, reducing your actual cost. The higher the contributions, the lower the effective payment percentage. Below, you’ll find how to make these deductions in different situations.

Two ways to deduct contributions

As an entrepreneur, you can deduct YEL contributions either:

• In your own or your spouse’s personal taxation, or
• In your company’s taxation.

The best option depends on factors such as whether you operate as a sole trader or through a company, as well as your other income and deductions. Generally, it’s wise to allocate deductions to income taxed at the highest rate.

Remember that from business income, you can only deduct mandatory pension contributions. From earned income, you can deduct mandatory contributions plus other statutory and voluntary payments.

What if the company pays instead of you?

If you currently pay your YEL invoices yourself, consider transferring them to your company. We automatically send invoices as e-invoices when the payer is a company with an e-invoice address. E-invoices are more secure than paper and arrive without postal delays..

Sole Trader: Deducting YEL Contributions

As a sole trader, you can choose to deduct YEL contributions as business expenses or in your personal taxation. You can decide when completing your tax return, but you can only choose one method.

Usually, it’s best to deduct them in personal taxation, where they apply to earned income. If your earned income is low, consider using your spouse’s taxation if they have higher income. The higher the earned income, the lower the effective YEL payment percentage.

If you have no earned income, don’t deduct YEL contributions in personal taxation—they aren’t considered when confirming losses in the earned income category.

You can estimate the impact of different scenarios on your total income using the tax rate calculator (vero.fi).

Operating through a company 

If your company is profitable, it’s usually best for the company to pay the contributions and deduct them as business expenses. Remember: if you want to deduct YEL contributions in company taxation, the company must pay them.

If your business is loss-making, deducting YEL contributions from business income increases the confirmed loss. If you or your spouse have earned income, you’ll only get an immediate tax benefit by paying the contributions yourself and deducting them from earned income.

Impact on entrepreneur deduction 

Entrepreneurs receive a 5% deduction on business income for the tax year. If you deduct YEL contributions as business expenses, they reduce business income and thus the entrepreneur deduction. If you deduct them in personal taxation, there’s no impact. Please note that the entrepreneur deduction does not apply to limited companies.

What should you do if you forgot to deduct YEL contributions on your taxes? 

If you forgot to deduct YEL contributions, you can request a correction within the appeal period—generally three years from the start of the year following the tax year. For example, for tax year 2022, the correction must reach the Tax Administration by 31 December 2025.

Key Points  

• The payer of YEL contributions is either you or your company.
• Deduct contributions in personal or company taxation.
• If you pay them yourself, deduct in your or your spouse’s taxation - preferably the spouse with higher earned income.
• If your company pays, deduct as company expenses.
• You must handle the deduction yourself; payment details are not sent from the pension company to the Tax Administration.