The national currency is the Euro (EUR). In 2021, EUR 0.84 was equal to USD 1. In that year, the average worker earned EUR 55 339 (Secretariat estimate).1

There are three categories (‘boxes’) of taxable income:

  • Taxable income from work and owner-occupied housing;

  • Taxable income from a substantial interest in a limited liability company;

  • Taxable income from savings and investments.

This description is limited to the most relevant aspects of taxable income from the first category, ‘taxable income from work and owner-occupied housing’, because of its relevance for the AW.

Husbands and wives are taxed separately on their personal income, which includes income from business, profession and employment, pensions and social security benefits. Certain parts of income may be freely split between husbands and wives, such as the net-income from owner occupied housing and the income from savings and investments.

Related to wage earnings:

  • For distances of more than 10 km between home and work, fixed amounts for travel expenses with public transportation are deductible. The maximum deduction for employees who travel by public transport is EUR 2 185 for distances of more than 80 km. If the travel expenses are reimbursed or the employer provides transport, there is no deduction; the reimbursement is untaxed (also for employees who travel by car) if it is below certain specified amounts.

  • Employee contributions to private (company provided) pension schemes.

  • Related to owner occupied housing:

    • Excess of mortgage interest over net imputed rent.

  • Related to personal circumstances:

    • Medical expenses and other exceptional expenses: Fiscal deduction of exceptional health expenses is reduced to the specific costs as a result of a chronic illness. As specific costs are seen medical treatment (not paid for by insurance company), diet costs, special medicine described by a doctor, extra domestic care, special expenses for clothing and transportation costs. Visual tools and insurance premiums are not seen as specific costs and are therefore not deductible. Expenses for wheelchairs, scooters for the disabled and home adjustments made because of a chronic illness are not deductible.

  • All expenses except for medical treatment expenses may be increased by a factor. This factor is income and age dependent. The factor amounts to 1.4 if the person is below the legal pension age and has an income on or below EUR 35 941. The factor amounts to 2.13 if the person is on or above the legal pension age and has an income on or below EUR 35 941. People with an income above EUR 35 941 cannot apply the factor.

  • For a single person: the specific expenses (after multiplication with the factor) in excess of 1.65% of income are deductible if income exceeds EUR 7 989 and is below EUR 42 434. If income is lower than or equal to EUR 7 989, the non-deductible limit is EUR 139. For a person with a partner: the joint income is used to determine the non-deductible amounts and the non-deductible limit is EUR 278.

  • If income exceeds EUR 42 434 the specific expenses in excess of 1.65% of EUR 42 434 increased with 5.75% of income above EUR 42 434 are deductible.

  • Some educational expenses: in direct connection with vocational education. Expenses above the threshold of EUR 250 are deductible. Expenses above EUR 15 000 are not deductible.

  • Donations to certain institutions (charity) that serve the public good are deductible if in excess of 1% of the income and in excess of EUR 60. No more than 10% of the income may be deducted in this way.

The tax schedule for income from work and owner-occupied housing is as follows:

The contributions for the general social security schemes are levied on income from work and owner-occupied housing in the first and second income tax bracket. These social security contributions are not deductible for income tax purposes. Individuals above the pension age pay 9.75% (for widows and orphans pensions, and exceptional medical expenses). Individuals below the pension age pay 27.65%, (for widows and orphans pensions, exceptional medical expenses, and old age income provision). For further information see Section 2.1.

The tax credits are deducted partly from the income tax liability and partly from the contributions that are made to the general social security schemes (see Section 1.13). For most families, the share of the credit attributed to tax is related to the ratio of the tax rate to the sum of the tax rate and the social security contributions rate in the first bracket of the tax schedule. In 2021, this ratio was 25.47% (= 9.45% / (9.45% + 27.65%), implying that 25.47% of the (tax) credit is attributed to the personal income tax and the remaining 74.53% to social security contributions.

Division of credits for tax and social security contributions is essential in the OECD publications. In the Netherlands no division is made in the general tax scheme between tax and SSC.

Note that the tax/benefit position tables show the total amount of social security contributions net of the credits that are claimed.

  • General tax credit: The general tax credit is dependent on income since 2014, meaning that higher incomes receive less general tax credit. Since 2016, the general tax credit is fully phased out, meaning that higher incomes receive no general tax credit. In 2021, the maximum of the general tax credit is EUR 2 837 when no reduction is applicable (people who are on or above the legal pension age receive less general tax credit, because they do not pay social contributions for the state pension) and taxable income is below or equal to EUR 21 043. For incomes above this threshold, the general tax credit is fully phased out at a rate of 5.977% (per euro). So incomes above EUR 68 507 receive no general tax credit.

  • Work credit: The amount of work credit depends on taxable income from work and is phased in on three trajectories; the first one runs from EUR 0 to EUR 10 108. On this first trajectory, work credit equals 4.581% of taxable income from work. On the second trajectory, which runs from EUR 10 108 to EUR 21 835, the work credit equals EUR 463 plus 28.771% of the part of income that is above EUR 10 108. On the third trajectory, which runs from EUR 21 835 to EUR 35 652, the work credit equals EUR 3 837 plus 2.663% of the part of income that is above EUR 21 835. So at an income of EUR 35 652, the maximum of EUR 4 205 is reached. Above this income of EUR 35 652, the work credit is fully phased out at a rate of 6.0% (per euro) so that incomes above EUR 105 736 receive no work credit.

  • Income dependant combination credit: A taxpayer who is either a single parent and working or the working partner with the lowest income, and who has children below the age of 12 and has his/her taxable income from work exceeding EUR 5 153, is entitled to an income dependent combination credit of 11.45% of taxable income from work above EUR 5 153. The maximum total combination credit is EUR 2 815 and reached at an income level of EUR 29 738.

  • Single parent credit: abolished since 2015.

  • Additional single parent credit: abolished since 2015.

  • Elderly tax credit: individuals above the pension age receive a tax credit of EUR 1 703 if their income is below EUR 37 970. This tax credit is gradually phased out to 0 at a rate of 15.0% for incomes above EUR 37 970. Individuals above the pension age who do not have a partner receive an additional tax credit of EUR 443 that is not income dependent.

The amount of the tax credit is limited to the amount of tax and premiums payable (non-refundable tax credit). If, however, a taxpayer with insufficient income to fully exploit his/her tax credit has a partner with a surplus of tax and premiums payable over his/her own tax credit, the tax credit of the former taxpayer is increased by (at most) the surplus tax and premiums payable by his/her fiscal partner. The cap for this increase is at 13.33% of sum of the general tax credit, the work credit and the income dependent combination credit. As a consequence, the tax credit of the former taxpayer will exceed tax and premiums payable, resulting in a payout of the residual tax credit to the taxpayer by the tax authority.


General schemes (for everyone earning income from (former) employment)

  • Old age pension: The age is adjusted such that elderly will receive Old Age (state) pension at the age of 66 years and 4 months old in 2021 and at 67 years old in 2024. The Old age premium percentage is 17.9% of taxable income in the first tax bracket. This scheme does not apply to individuals above the current pension age.

  • Widows and orphans pension: 0.10% of taxable income in the first tax bracket.

  • Long-term care: 9.65% of taxable income in the first tax bracket.

Schemes for employees:

  • Unemployment: 0% of the gross earnings below EUR 58 311 (this contribution is only for the general unemployment fund); employees do not have to pay an unemployment premium in order to reduce administration costs. Employers pay both an unemployment premium and a premium for invalidity for their employees (see par.2.2).

  • For basic health insurance each adult pays an average amount of EUR 1 478 a year to a self-chosen private health insurance company. This premium is a non-tax compulsory payment and it is not included in the Taxing Wages calculations but only in the NTCP calculations.

  • Employees might obtain compensation for the nominal contribution of on average EUR 1 478 for the basic health insurance, depending on the household’s personal situation and taxable income. This is called the health care benefit. This benefit is included in the NTCP calculations as it compensates for the basic health insurance premium of on average EUR 1 478 (see for more details on non-tax compulsory payments as well as the Special Feature in the 2009 edition of the Taxing Wages Report). The care benefit is calculated as follows:

    • Single parent households: 1705 – 1.915% * 21 835 – 13.58% * (taxable income – 21 835)

    • Married couples: number of adults * 1705 – 4.225% * 21 835 – 13.58% * (taxable income principal and spouse – 21 835).

Schemes for employers:

  • Unemployment: 3.95% of gross earnings below EUR 58 311 for the general unemployment fund and a contribution of 0% of gross earnings below EUR 58 311 for the industrial insurance associations redundancy payments fund;

  • Invalidity: 8.89% of gross earnings below EUR 58 311;

  • For medical care employers contribute 7.0% of gross earnings net of employees’ pension premiums and unemployment social security contributions until a maximum of gross earnings of EUR 58 311. This contribution is modelled as a NTCP from the employer to the Health Care Fund. The spending of this fund mainly compensates private insurance companies for their (public) obligation to insure individuals with a high health risk.


Families with children receive a tax free benefit, depending on the number and age of the children. For a family with two children in the age group of 6 to 12 years, the total benefit amounts to EUR 2 185.79 a year.

An additional income dependent child benefit exists (kindgebonden budget). This benefit also depends on the number of children per family. A family can only claim the extra child benefit when it has children under the age of 18 years old for whom it also receives the tax free and income independent child benefit. The maximum value is EUR 1 204 per year for families with one child in 2021. The maximum value is EUR 2 226 a year for families with two children. The benefit is reduced at a rate of 6.75% per euro when the family’s yearly taxable income exceeds a threshold. Since 2020 this threshold is different for single parents and couples. For single parents the threshold equals EUR 21 835, for couples it equals EUR 38 853. As from 2015 an extra benefit for single parents is introduced (independent of the number of children and the age of the children) which amounts to EUR 3 242 per   in 2021. This amount is also phased out at a rate of 6.75% from the threshold. Therefore this total benefit is completely phased out for families with two children when the taxable income exceeds EUR 102842 for single parents and EUR 71 831 for couples.

In 2001, the tax system was changed thoroughly. The tax rates have been lowered; the basic allowance and its supplements have been transformed into tax credits. The deduction for labour costs has also been replaced by a tax credit. Certain other deductions have been reduced or abolished. Extra tax credits for households with children were introduced.

In 2002 and 2003 the tax system was only slightly changed. The additional combination credit was introduced in 2004. The various child credits were integrated and streamlined in 2006.

Public insurance for medical care has been reformed in 2006. A new standard health insurance system was introduced. Until 2005, no public health insurance contributions were levied on income in excess of EUR 33 000. However, taxpayers earning more than EUR 33 000 were obliged to take a private insurance. These private health insurance contributions were not included in the Taxing Wages calculations because they were made to a privately-managed fund (and are therefore not taxes). Since 2006, every individual contributes a nominal contribution to a privately-managed fund (on average EUR 1 064, depending on the competition between insurance companies, a year in 2009) and, in addition for employees, a percentage of gross income (6.9%) net of employees’ pension premiums and unemployment social security contributions until a maximum of gross income of EUR 32 369 (in 2009). For this last contribution, the employee receives mandatory compensation of his employer for the same amount. The premium itself, however, is not modelled (either as an employee or employer SSC) in Taxing Wages. Instead it is modelled as a non-tax compulsory payment from the employer to a public-managed health insurance fund. The spending of this fund mainly compensates private insurance companies for their (public) obligation to insure individuals with a high health risk. Taxpayers might obtain compensation for the nominal contribution to the private insurance company of on average EUR 1 064 in 2009, depending on the households personal situation and taxable income. This is called the health care benefit and is part of the NTCP (see Section 2.1).

In 2007, the tax system has not been changed, except for some parameter updates. In 2008, the child credit has been replaced by an extra child benefit.

In 2009, the general tax credit will be reduced for non-working spouses in order to cut down the capitalization of this tax credit in 2024. A non-working spouse can in 2024 capitalise the general tax credit only against his/her own earned income. In 2009 the employment credit is extended for income exceeding EUR 42 509. This credit will be reduced by maximum EUR 24, whereas the employment credit is increased for lower incomes. The income dependant combination credit is introduced in order to promote the labour participation of single parents or partners of married workers. The income-dependent combination credit has been increased considerably. The extra child benefit depends on the total income of the family and the number of children per family. The income-dependent child benefit is higher when more children under the age of 18 years are member of the family. As from 2009 onwards, employees do not have to pay an unemployment premium mainly to reduce administration costs for employers. Employers pay now both an unemployment premium and a premium for invalidity for their employees (see also par. 2.2).

In 2013, the income base for SSC and Income-Tax is harmonised. Standardising or harmonisation of the income tax base for levying SSC and Taxes is introduces in 2013 and is called the Law “WUL” i.e. Harmonising the income base for SSC and Taxes (see publication CPB the Netherlands). So, the income tax base is since 2013 exclusive the income dependant health care contribution and employees will no longer have to pay taxes over income dependant health care contributions, instead they pay a higher tax rate in the first tax bracket and mainly Work credit is adjusted. The tax rate in the first tax bracket has been increased from 1.95% to 5.85% and the Work credit is reduced for employees with a higher income such that the effect of this harmonisation is budgetary neutral.

The main adjustment in 2014 is the General tax credit which is made income dependent. Higher income will receive less general credit and the reduction is 2% per euro of income between EURO 56 495 and EURO 19 645 per year. See also par 1.141.

In 2015, the child arrangements are reduced from 10 items to 4 items. For that reason Single parent credits have stopped. Cash transfers for parents with children and low income increase. And for single parents with children an extra cash benefit of EUR 3 050 is introduced to compensate the loss of single parent credits.

Not all child arrangements are part of the TW model because these are quite specific arrangements for disabled children and parents with low income with children.

Long term health care is modernised. The SSC rate for (AWBZ Dutch) reduced with 3% to 9.65% of taxable income. The tax rates in the first two brackets are raised with 3% because Social spending is still used but now for other general social purposes.

In 2016, as part of a EUR 5 billion package of tax reductions on work, the general tax credit and the work credit were phased out fully, meaning that higher incomes no longer receive the general tax credit and the work credit.

Multiple tax credits were increased and made more income dependent in 2019. The working credit is increased, but phased out at a faster rate of 6% (instead of 3.6%). The combination credit starts at EUR 0 instead of EUR 1 052, but increases with 11.45% instead of 6.159%. The elderly tax credit has been increased and is now gradually phased out at a rate of 15%, instead of a sudden drop of more than EUR 1 300 above a threshold income. Also, a first step has been made to unify the tax rates in the first three brackets.

In 2020, the number of tax brackets has been reduced from four to three. For people below the retirement age there are effectively only two different brackets, since their combined rate of tax and social security contributions is the same in the first and second bracket. Secondly, a new phase in trajectory has been introduced for the work credit. Thirdly, the threshold after which the income dependent child benefit is phased out is now higher for couples than for single parents.

The covid-19 pandemic has not led to changes in labour taxation for employees. Employers and self-employed do have the option to postpone payment of labour taxes. Also, some of the requirements for self-employed to qualify for certain deductibles (e.g. a minimum number of hours to qualify for a self-employed deduction) have been temporarily loosened.

The calculation of the annual gross earnings of an AW is based upon data on gross earnings of full time workers in industry C-K. These data have been obtained through a yearly sample survey carried out by the Central Bureau of Statistics. Included in the AW annual salary are irregular payments, such as holiday allowances, loyalty payments and bonuses. Payments for working overtime are not included. However, the CBS has stopped carrying out the ‘employment and wages’ survey in July 2006 due to new legislation. On Inquiry at the Central Bureau of Statistics (CBS) the information from the wage declarations by employers, delivered nowadays at the tax department, will be implemented by the CBS for the new survey about employment and wages. These changes produced a delay in delivery of the information on wages and employment for 2006.

On the base of new information on wages per industry sector, the AW is delivered to EUROSTAT in November 2009 by the CBS for years 2006 and 2007. The standard classification NACE Rev. 1 for industrial sectors C-K is used.

The new classification NACE Revision 2 (sectors B-N) will be applicable as from 2008 onwards. The estimation of the AW for 2008 according to the new classification is applicable at the beginning of May 2010. The AW for 2009 is available since November 2010. For 2008 the average annual gross earnings (full-time NACE REV 2) comes to EUR 43 146, for 2009 EUR 44 412, and EUR 45 215 in 2010. The latest information according to EUROSTAT is an AW in 2011 of EUR 46 287 (NACE Rev 2).

The average wages from 2012 onwards include the private and the public sectors, since values on the private sectors only (sectors B to N) are not available. The values were provided by Statistics Netherlands.

In addition to the obligatory contributions of employees to private insurance companies, all employers pay contributions to a public-managed health fund. More information is included in the Special Feature where the contributions to the public-managed health funds are also presented.

Employers have to pay at least 70% of the gross wage of their sick employees for two years. Many employers have insured themselves privately for the risks of their employees being sick. This insurance for illness of their employees is not compulsory.

2021 Parameter values

2021 Tax equations

The equations for the tax system in the Netherlands in 2021 are repeated for each individual of a married couple. Tax credits, except a part of the general credit of the spouse, depend also on the tax paid by the principal if the spouse's income is zero or very low, and the cash transfers are calculated only once. The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note on the tax equations. Due to adjustments of the work credit in 2016 and 2020, the function Emp_credit(Value) was altered in those years. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affix “_spouse” indicates the value for the spouse. No affix is used for the principal values. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.


← 1. The Dutch labour market is characterized by a substantial share of part-time employees. As explained in the methodological section of this volume, the average wage measure used in the tax burden calculations refer to full-time employees only. If the wages of part-timers were taken into account, the average wage would be substantially lower.

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