The Netherlands: Dutch Budget 2020 – New Tax brackets and Tax Free Allowances

January 1, 2020

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
First bracket 

36.65 %
(incl. 27.65 % NIC)

EUR 0 EUR 20,384
Second bracket

38.10 %
(incl. 27.65 % NIC)

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
First bracket 

37.35 %
(incl. 27.65 % NIC)

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.

Further information

Published in the Dutch Budget 2020

For further information or to discuss any of the issues raised, please contact Hans van Ruiten on +31 10 224 64 18 or Karin Chung on +31 20 578 56 19.



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