Income tax in the Netherlands
Before the first of April citizens have to report their income from the previous year. The system integrates the income tax with fees paid for the basic old-age pension system (AOW), the pension system for partners of deceased people (ANW), and the national insurance system for special medical care (AWBZ).
There are three categories of income, each with their own tax rates. They are referred to as "boxes". We only mention box 1 on our guide, please refer to the website of the Belastingdienst for more information. If you have any questions or comments regarding this text, please contact us.
Progressive tax on wages etc. (box 1)
There is a progressive tax on wages, profits, social security benefits and pensions. Thus there are tax brackets, each with its own tax rate. Mathematically, apart from discretization (whole euros both for income and for tax), the tax is a continuous, convex, piecewise linear function of income.
Income Tax in 2020
The proposed tax rates for income from work (Box 1) will be lowered and limited to a base rate of 37.10% for income up to €68,507 and a top rate of 49.5% for income exceeding €68,507.
Benifts and deductions
Certain deductible expenses will only be deductible against a maximum rate of 46% (instead of the top rate). These expenses concern: alimony payments, specific healthcare expenses, weekend expenditure for handicapped individuals, educational expenses, charity donations, self-employed deductions, the deduction for small and medium-sized enterprises and the exemption for the business use scheme.
Health insurance premium
From 2006 there is a new national health insurance scheme (zorgverzekering(swet), Zvw ). The premium is partly income-dependent and paid as a tax supplement. It applies for the "contribution income" (bijdrage-inkomen ), which is part of box 1, including labor income, social security benefits, pensions, and life annuities (it does not include the "owner-occupied dwelling income"). It is withheld if the wage withholding tax applies. The rate is 7.1% for e.g. wages and 5% for e.g. life annuities, coming on top of the tax percentages mentioned above. The total income for which these rates apply is limited to ca. 50,000 euro.