Income Tax in The Netherlands - Progressive Tax On Wages Etc. (box 1)

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.

For 2010, income tax for persons under 65 is as follows:

• For the part of income up to € 18,218: 2.3%; tax on €18,218 is €419
• For the part of income between €18,219 and €32,738: 10.8%; tax on €14,520 is €1,568
• For the part of income between €32,739 and €54,367: 42%; tax on €21,629 is €9,084
• On all income over €54,367: 52%

For 2010, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income) for persons under 65 is as follows:

• For the part of income up to € 18,218: 33,45%; tax on €18,218 is €6,094
• For the part of income between €18,219 and €32,738: 41.95%; tax on €14,520 is € 6,091
• For the part of income between €32,739 and €54,367: 42%; tax on €21,629 is €9,084
• On all income over €54,367: 52%

For 2011, income tax for persons under 65 is as follows:

• For the part of income up to € 18,628: 1.85%; tax on €18,628 is €345
• For the part of income between €18,629 and €33,436: 10.8%; tax on €14,808 is €1,599
• For the part of income between €33,437 and €55,694: 42%; tax on €22,257 is €9,348
• On all income over €55,694: 52%

For 2011, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income) for persons under 65 is as follows:

• For the part of income up to € 18,628: 33%; tax on €18,628 is €6,147
• For the part of income between €18,629 and €33,436: 41.95%; tax on €14,808 is € 6,212
• For the part of income between €33,437 and €55,694: 42%; tax on €22,257 is €9,348
• On all income over €55,694: 52%

For 2012, income tax for persons under 65 is as follows:

• For the part of income up to €18,945: 1.95%; tax on €18,945 is €369
• For the part of income between €18,945 and €33,863: 10.8%; tax on €14,909 is €1610
• For the part of income between €33,863 and €56,491 : 42%; tax on €22,628 is €9,503
• On all income over €56,491 : 52%

For 2012, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income) for persons under 65 is as follows:

• For the part of income up to € 18,945: 33.1%; tax on €18,945 is €6,271
• For the part of income between €18,945 and €33,863: 41.95%; tax on €14,909 is € 6,258
• For the part of income between €33,863 and €55,491: 42%; tax on €22,628 is €9,504
• On all income over €55,694: 52%

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.

An employer may set up an employee savings scheme (spaarloon) allowing employees to save up to EUR 613 per year of their wages without paying income tax on that part of their wages, provided that they do not withdraw their savings within four years, or for designated purposes (including but not limited to buying a new house and starting a business). The employer pays the income tax, but only a reduced rate of 15%. During this period the savings are also exempted from the tax of box 3.

A competing savings scheme (levensloopregeling (nl)) allows employees to save 11% of their pre-tax income, with taxes and premiums deferred until the money is taken out. Money saved in this manner may only be used to receive income during leave. In this way, an employee can save up money to take a sabbatical, extended holiday, or early pension. However, the employer must approve the leave. The two savings schemes are incompatible (an employee must choose either one or the other), the latter being unpopular.

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. There are plans to abolish this discount for people with an income which is more than EUR 15,000 per year above the AOW pension, if they have not worked until the age of 65. Details of the plan are yet unknown.

For employed and self-employed people there is an employment rebate of up to EUR 1,392 (more for people in the age range 57–64, up to EUR 2,138, less for 65+).

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.

See also Box I (inkomstenbelasting) (in Dutch)http://nl.wikipedia.org/wiki/Box_I_(inkomstenbelasting).