How Does Personal Deduction Work and Who Benefits from It?

January 30, 2025

10 min read

What is Personal Deduction?

Personal deduction is an amount subtracted from the employee's gross monthly income before calculating income tax. It represents a form of fiscal support offered by the state, through which employees who earn less or have dependents can pay lower tax. Personal deduction is regulated by the Fiscal Code and applies only at the main workplace, not for other income sources.

The Role of Personal Deduction in Tax Calculation

In practice, personal deduction reduces the base for calculating the 10% tax. If your gross salary is 3,000 lei and you're entitled to a deduction of 400 lei, tax will be calculated only for 2,600 lei. This tax exemption is not a "bonus" or an extra payment, but a mechanism that directly reduces the amount withheld by the state.

Who Benefits from Personal Deduction?

Personal deduction is granted only to certain categories of people who earn income from salaries within an employment contract. It's not available for self-employed persons, freelancers, or people who earn income from sources other than salary.

Categories of Eligible Employees

Employees with gross monthly salaries up to 4,000 lei;
People with minor children or other dependents;
Part-time employees, if total gross income doesn't exceed the threshold;
Pensioners who also have supplementary income from employment.

Who Doesn't Benefit

Self-employed and other independent forms of activity;
People working exclusively under copyright, rental or dividend regimes;
Employees who haven't correctly declared their family situation or haven't submitted justifying documents.

What's the Threshold and How is Personal Deduction Applied?

Currently, the maximum threshold for granting personal deduction is 4,000 lei gross monthly. If the gross salary is higher than this amount, the employee no longer benefits from deduction, regardless of the number of dependents.

How is the Personal Deduction Value Established?

Personal deduction is progressive: the lower the income, the higher the deducted amount. Also, the deduction increases based on the number of dependents. It's established according to grids published by ANAF and applied monthly by the employer.

Indicative Deduction Examples

How is Personal Deduction Calculated?

The Deduction Application Process

Personal deduction is automatically calculated by the employer, but only based on information and documents provided by the employee. It must be declared through a standard form, available from the employer, and is valid only if constantly updated.

Types of Deduction

Basic personal deduction – applicable for employees without dependents;
Supplementary deduction – applicable for employees who have children, parents or other dependent persons in care.

It's important that any change in family situation (e.g., birth, legal separation, child coming of age) be notified in time to avoid subsequent recalculations.

Examples of Concrete Situations

These practical cases help you understand more clearly how personal deduction works.

Employee without dependents, gross salary 3,000 lei → Personal deduction: approx. 310 lei → tax applied to 2,690 lei
Employee with 2 minor children, gross salary 3,500 lei → Personal deduction: ~530 lei → tax calculated on 2,970 lei
Employee with gross salary 4,100 lei and 3 children → Doesn't benefit from personal deduction → tax applies in full to 4,100 lei
Part-time employee with gross salary 1,500 lei and 1 child → Personal deduction: ~500 lei → tax applied to 1,000 lei

What is Considered a "Dependent"?

For a family member to be considered a dependent, they must meet certain legal conditions:

Criteria for Dependent Person

Have no income or have income lower than the gross minimum wage;
Be a minor child, spouse without income or parent in the taxpayer's care;
Have a kinship relationship or a declared legal form of support;

Documents Required for Justification

Birth certificate (children);
Declaration on own responsibility that the person has no income;
Court decision (if concerning persons in placement);
Other supporting documents proving support.

How Do You Prove Dependents?

To obtain personal deduction, you must present to the employer documents proving the support relationship:

Required Documents

Copy of birth certificate for minor children;
Declaration that spouse/parent has no income;
Supporting documents for persons outside the direct family, if legal support exists;
Completed and signed personal deduction form.

Documents are updated at the beginning of the year or when significant changes occur in family situation.

Frequently Asked Questions about Personal Deduction

Can I have personal deduction at two workplaces?

No. Personal deduction applies only at the main workplace, where the primary contract is declared.

What happens if I don't submit the declaration for dependents?

Without documents, the employer will apply only minimum deduction or none at all, and tax will be higher than it should be.

Can I benefit retroactively from personal deduction?

Yes, but only within the current fiscal year, and only if supporting documents can be presented.

Is personal deduction taxable?

No. Personal deduction is not income, but a tax exemption that reduces the taxable base.

Deduction Calendar: When is it Applied and How is it Updated?

Annual Application Period

Personal deduction is a fiscal benefit applied monthly, but has continuous character within the same fiscal year. This means that once established based on the situation declared at the beginning of the year or upon employment, it applies month by month, automatically, until a relevant change appears. The employer is responsible for applying the deduction each month, starting with the month following the one in which the employee provided the necessary documents. There's no fixed month when deduction should be "reactivated," but it's recommended that employees review their situation at least once a year, preferably in January. If changes occur meanwhile, updating is required.

Changes During the Year

Any change affecting the right to deduction must be immediately communicated to the employer. Among the most frequent situations are: child birth, loss of support (e.g., child becomes adult and has income), marriage or divorce, change in number of dependents, or loss of supplementary employment that influences total income. If gross income exceeds the 4,000 lei threshold following a salary increase, deduction no longer applies starting with the following month. If the employee doesn't notify changes in time, errors may appear in tax calculation, which must be corrected later, sometimes with retroactive recalculations.

Employee's Role

The employee is directly responsible for providing correct and current information. They must submit to HR or accounting a declaration on own responsibility, completed and signed, as well as supporting documents (birth certificates, income certificates for spouse/parents, court decisions, etc.). No employer can apply deduction without complete documents. It's important that employees treat this process seriously, as any amounts withheld in excess aren't automatically refunded, but only upon express request, within the legal term.

Who Establishes the Deduction and How Does the Employer Apply It?

Legal Responsibilities

Personal deduction is regulated by the Fiscal Code, articles 77 and 78, and is established annually by the National Agency for Fiscal Administration (ANAF), by publishing a grid with exact values based on gross income and number of dependents. ANAF's role is to provide the legislative framework, calculation methodology and applicable limits, but doesn't directly intervene in monthly application – this task belongs exclusively to the employer.

The employer has the legal obligation to apply deduction for each employee, according to received documents. Non-compliance with this obligation can attract sanctions in case of fiscal control. Therefore, although deduction is established nationally, its application is decentralized and depends on correct payroll administration.

Information Flow

For deduction to be correctly applied, there must be clear communication between employee and human resources or accounting department. The employee completes a standard declaration, usually at the beginning of the year or upon employment, mentioning their family situation and dependents. Besides this form, supporting documents are also necessary, which are archived in the personnel file.

The employer enters this information into a salary calculation system, manual or digital, and deduction is automatically applied each month, based on gross salary and provided data. If data isn't updated, the system will continue calculating based on old information, which can lead to incorrect tax withholdings.

Control and Verification

ANAF has the right to verify at any time whether the employer has correctly applied personal deductions, especially during a comprehensive or thematic fiscal control. If deductions are found to have been incorrectly applied or without supporting documents, the employer may be required to recalculate salaries, pay tax differences and, in some cases, bear penalties.

To avoid such situations, companies must keep clear records of all declarations and supporting documents and periodically review the situation of employees benefiting from deduction. Responsibility is shared: the employee must declare correctly, and the employer must apply and document the entire process.

What Happens if the Employer Doesn't Apply Deduction?

Effects on Net Salary

Personal deduction has a direct impact on net salary, as it reduces the income tax calculation base. If the employer doesn't apply deduction, tax will be calculated on the entire gross salary, and the withheld amount will be higher than legally necessary. For example, instead of paying tax for 2,800 lei (with a 200 lei deduction), you'll be taxed for 3,000 lei. The difference may seem small monthly, but accumulated over a year can exceed several hundred lei.

In many cases, employees don't immediately notice the lack of deduction, because the difference is integrated into the payslip as withheld tax. That's why it's important for each employee to check their payslip monthly.

Employee Rights

The employee has the legal right to request tax recalculation if deduction wasn't applied, provided they present necessary documents and make the request within the legal term – within the same fiscal year. If the lack of deduction occurred due to the employer's fault (for example, lost documents or omitted to register them), they are obligated to recalculate salaries and refund differences.

If the employer refuses or ignores the request, the employee can address the territorial labor inspectorate (ITM) or file a complaint with ANAF. They can also request tax correction through the unified regularization declaration, but this involves a more complex bureaucratic process.

Sanctions and Consequences for Companies

If following an ANAF control it's found that deduction wasn't properly applied, the employer may be sanctioned with:

obligation to recalculate salaries and taxes;
payment of incorrectly withheld tax differences;
interest and penalties for non-compliance;
administrative fines, depending on situation severity and error recurrence.

Also, the company risks a poor reputation among employees, which can influence staff retention. In conclusion, correct application of personal deduction is not just a legal obligation, but also a sign of respect toward employees and good internal administration.

What to Do if You Forgot to Submit Documents for Deduction?

If you didn't submit necessary documents in time to benefit from personal deduction, it doesn't mean you've permanently lost this right. Deduction can be applied retroactively, respecting clear conditions and within the same fiscal year.

Common Situations Where Deduction is Omitted

The most common cases are: beginning employment without completing the deduction declaration, omitting to update family situation (e.g., child birth), lack of supporting documents or inattention in transmitting them to the employer. Sometimes, the employee assumes deduction applies automatically, without knowing a completed and signed form is needed.

How Can Deduction Be Applied Retroactively?

The employee must bring to human resources or accounting department the following:

Declaration for personal deduction, completed with current data;
Supporting documents, depending on situation (birth certificate, income declaration for spouse, etc.);
A written request asking for salary recalculation for previous months.

The employer has the obligation to recalculate payrolls and refund the difference withheld in excess, but only for months within the same fiscal year. If the request is made the following year, deduction can no longer be applied retroactively except through special mechanisms, such as fiscal declaration rectification, which involves bureaucracy and deadlines.

Deadlines and Recommendations

It's recommended to submit documents immediately upon noticing the omission. The faster you act, the simpler the process. Usually, deduction cannot be applied for already closed previous years, and ANAF doesn't allow fiscal regularizations for personal deductions from past years, only for incorrectly declared taxes.

Check your payslip monthly and ensure the deduction appears. If it's missing, discuss with the payroll department – it's simpler to correct in real time than to recover retroactive differences.

Conclusion

Personal deduction is an efficient way through which the state supports employees with low incomes or family responsibilities. Understanding how personal deduction works allows you to avoid paying higher tax than necessary. Periodically check your fiscal situation and don't forget to update documents whenever family changes occur. This exemption, correctly applied, can bring significant savings month by month.