Payments to pension funds for private pension insurances are deductible up to 8% of total employment income and presumptive employment income. Otherwise, no significant deductions are allowed from employment income.

All individual taxpayers are entitled to a personal tax credit against the computed state and municipal income taxes on income. 

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See Child benefit

Individuals, who buy a residence for their personal use and bear interest expenses, are entitled to recompense by the State Treasury. The amount of interest compensation is based on the interest for loans obtained for the purpose of financing a building or for purchase of a residence. The benefits are linked to income and net wealth. Limitations apply to the amount of interest on the basis of which the compensation may be calculated, and also to the amount of the interest compensation itself.

Losses on the sale of private (non-business) property are generally not deductible; however, they may be deducted from gains made on the sale of similar property in the same year.

Operating losses may only be deducted from business income. The net operating loss may be carried forward for 10 years. Carry-back is not allowed.

Taxable income is salary minus the pension fund premium. Personal tax credit, which is ISK 68,691 pr. month is deducted from calculated taxes.

Income of capital gains derived by individuals which are not engaged in business activities is taxed separately at a rate of 22%. In the case of dividends and interest, the tax is withheld at source. Income taxed this way must be reported on the tax return. In the case of capital gains from the sale of immovable property and shares, as well as rental income from private immovable and movable property, the tax is levied by way of assessment for residents but for non-residents the tax is withheld at source.