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 changes 2018 and 2019

Major changes in Income Taxes in the Netherlands will take place in 2019 but there will be a slight change in the tax rates in 2018. At the moment, there are officially four income tax bands but the second and third band are the same. Dutch taxpayers are charged 36.55% on earnings up to €20,000, 40.8% on earnings up to €67,000 and 52% above that. This year the mid tax band will go up marginally to 40.85% while the top band, for income over €68,500 will be 51.95%. The new system in 2019 will involve an income tax rate of 36% on earnings up to €68,000 and 49.5% for all income above that.

Benifts and deductions

Under certain conditions a life annuity is treated as a pension: premiums are deducted from the income, the benefits are taxed, and the scheme is not counted as asset in box 3. The conditions concern the type of life annuity and the necessity, based on the principle that the more the income is, the more pension plus life annuity one needs to build up for the future, up to a maximum.

For the value of an owner-occupied dwelling and for mortgage debt related to that, this box and not box 3 applies. Based on the value of the dwelling, a "fixed rentable value" is counted, while interest for the mortgage is deductible. This is an important factor, since interest on a mortgage can easily be over a thousands euros per month, which is subtracted from income before any income tax is applied. If the value of an owner-occupied dwelling would be positive (fixed rentable value is greater than interest) it is changed to zero.

For taxpayers aged 65 or older (to be referred to as 65+) reduced rates apply for the first two brackets: 15.75% and 23.5%, respectively. The discount of 17.9% of the income in these brackets corresponds to the AOW contributions, which are not owed by the AOW beneficiaries.

For employed and self-employed people there is an employment rebate.
The wage withholding tax is a deduction of wages, social security benefits and pensions, as an advance payment for the income tax, paid through the employer, etc.

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.