The Netherlands: Dutch Budget 2020 – New Tax brackets and Tax Free Allowances
There have been two relevant updates to Dutch wage tax, according to the Dutch Budget 2020.
Alongside a two-bracket tax system, there has also been an increase from 1.2% to 1.7% for the tax free allowance for the first 400,000 euros of taxable wages under the Employment Costs Scheme. We take a further look into these two changes below.
Income tax system
A two-bracket tax system (with a third bracket for those not covered by Dutch social security – where the National Insurance Contributions (NIC) component does not apply) was implemented as of January 1st, 2020. Set out below are overviews of the applicable tax brackets in 2019 and in 2020 respectively, showing combined rates for income tax and national insurance contributions.
|Bracket 2019||Tax rate||From||To|
|EUR 0||EUR 20,384|
|EUR 20,384||EUR 34,300|
|Third bracket||38.10 %||EUR 34,300||EUR 68,507|
|Fourth bracket||51.75 %||EUR 68,507|
|Bracket 2020||Tax rate||From||To|
|EUR 0||EUR 34,712|
|Second bracket||37.35 %||EUR 34,712||EUR 68,507|
|Third bracket||49.50 %||> EUR 68,507|
A taxpayer’s marginal rate may well deviate from the rates shown above, as the tax rebates are income-dependent: the general tax rebate is nil for taxpayers with taxable income in excess of EUR 68,507, the wage tax rebate is nil if taxable income exceeds EUR 98,639.
The Employment Costs Scheme
The Employment Costs Scheme provides for a tax-free employment costs budget of 1.2% of the total taxable wages paid by the employing company, from which an employer can make tax-free payments and allowances to employees (in addition to specific exemptions). As of 1 January 2020, the tax-free budget for the first € 400,000 of taxable wages has increased from 1.2% to 1.7%. Once total taxable wages exceed € 400,000, the tax-free budget will remain at 1.2% of the wage bill.
If the tax-free employment costs budget is exceeded, the employer must pay a final levy of 80% on the excess.
Published in the Dutch Budget 2020