Wage tax in the Netherlands

The Dutch wage tax is an advance tax payment for the Dutch income tax.

The Dutch withholding system is a 'Pay-As-You-Earn' system. The monthly withholding from the salary prevents taxpayers from paying a single large payment for income tax and social security contributions once a year. It also provides the Dutch tax authorities more certainty that the taxes due by employees (and employers) will be paid and reported. 

The wage tax is, in technical terms, a pre-levy on the personal Dutch income tax due by the employee. Dutch wage tax law is separate from Dutch personal income tax law. Dutch wage tax is calculated based on withholding tables, the taxpayer's age, the progression of the Dutch income tax rates, and the standard tax deductions and allowances. A separate withholding table is applied for a-periodical salary components, such as a bonus or severance payment.

In a standard situation where the employee's only income is the income from employment to which the withholding is applied and where the employee is not entitled to any exclusive tax deductions or allowances, the wage tax withheld will be equal to, or at least nearby of, the Dutch income tax due by the employee. This is why many Dutch taxpayers effectively do not receive an invitation to file an annual income tax return; the already withheld and paid wage tax is considered the final settlement of the employee's income tax obligation as it is. However, because of the difference in the annual calculation of personal income tax and the applicable wage tax tables, this does not apply to years in which the employee is a part-year resident.