The wage withholding tax has to be calculated on all remunerations an
employee receives on the basis of his employment for his work. Tax is also
payable on various benefits, e.g. old age pension and other benefits.
The principal forms of wages are ‘wages in cash’: salary, holiday allowance,
overtime payment, commissions, annual bonus, and anything else an employer pays
in cash to an employee which is deemed to be remuneration for his work. But
there are other forms of wages as well, such as remuneration ‘in kind’, claims
and (free) reimbursements and facilities.
Remuneration in kind is income that is not paid in money, but in some other way,
for instance a holiday or a camera.
A claim is an entitlement to receive a benefit or facilities after a set period
of time, or subject to conditions. An example of this is entitlement to pension.
Examples of facilities are tools, meals or tickets for public transport.
Free reimbursements are amounts an employer pays an employee to cover costs the
employee incurs in order to be able to perform his work properly. Amounts the
employer pays the employee which, according to the generally held view, are not
seen as remuneration for services provided or to be provided, are also included
in this category. Reimbursements and facilities are treated in the same way as
far as this is possible.
If allowances in kind may be issued tax-free, they may usually be reimbursed
tax-free as well. Examples include professional literature or work clothing. A
free reimbursement or facility of this kind is not deemed to be part of the
income. Some free reimbursements or facilities are exempt from tax up to a given
limit, e.g. those for travel expenses. Other reimbursements and facilities are
sometimes subject to tax for a fixed sum which will be part of the employee’s
wages. The part of the reimbursement or facility that is not tax-free is subject
Tax on the taxable income from work (box 1, see paragraph 3.3) is:
• The first bracket: 34.15% on the first € 17,046.
This rate comprises 2.45% tax and 31.70% social security contributions.
• The second bracket: 41.45% on the next € 13,585.
This rate comprises 9.75% tax and 31.70% social security contributions.
• The third bracket: 42% on the next € 21,597.
This rate consists solely of tax.
• The fourth bracket: 52% on the excess.
This rate also consists solely of tax.
Taxpayers aged 65 or older are subject to a rate of 16.25% in the first bracket
and 23.55% in the second bracket because persons over the age of 65 are no
longer required to pay old age pension (aow) contributions.
When deducting wage withholding tax, the employer takes levy rebates into
account. Among other things, these consist of a general rebate and employment
rebate. These are general credits that apply to all employees. The general
rebate comprises a tax element and a social security contribution element.
Entitlement to the contribution element of the general rebate applies only if
the employee has compulsory Dutch social security coverage. The employer may not
take into account any allowances and deductions that are linked to the
employee’s personal circumstances. To avail himself of personal deductions, an
employee must file an income tax return. For some employees wage withholding tax
is the final tax because they are not eligible for personal deductions and have
no further income.
Reduction in tax and contributions for various groups of employees
Employers may avail themselves of a reduction in tax and contributions for
various groups of employees. In such a case they may remit a lesser amount in
wage tax and social security contributions.
The principal goals of lower remittances are to stimulate education and