Last week, in our article “A donkey bumps into …” regarding the unexpectedly lower refunds or higher amounts payable in respect of income tax and national insurance contributions for 2014 – announced as “additional assessments” – resulting from legislative changes that were not incorporated into the Tax and Customs Administration’s computer systems in good time. It is now clear exactly which changes are involved.
Every taxpayer in the Netherlands is entitled to the general tax credit. This is an amount that is deducted from the calculated income tax and national insurance contributions. For 2014, the maximum general tax credit is:
– for taxpayers under the state pension age: €2,103;
– for taxpayers who are older than the state pension age: €1,065.
With effect from 2014, this general tax credit has been made income-dependent. This means that the higher the income, the lower the tax credit. The reduction amounts to 2% of the income above €19,645, but the tax credit is at least €1,366 (for taxpayers over the state pension age: €693).
Take, for example, a 35-year-old with an income of €45,000. The income tax and national insurance contributions due would then amount to (for the sake of simplicity, we’ll only include the general tax credit in the calculation):
| € | € | |
| 36,25% * € 19.645 = | 7.121 | |
| 42% * € 25.355 = | 10.649 | |
| 17.770 | ||
| General tax credit | 2.103 | |
| Reduction (2% * €25,355) | 507 | |
| Balance of the general tax credit | 1.596 | |
| 16.174 |
All these factors are taken into account when withholding payroll taxes. Consequently, no “additional tax assessment” arises, except where the taxpayer/employee receives remuneration that is subject to payroll tax on the basis of the table for special payments, such as paid overtime, holiday pay or a (year-end) bonus.
If the taxpayer in our example were to receive an end-of-year bonus of €5,000, the following amount of payroll tax would be deducted based on the table for special payments: 42% * €5,000 = €2,100. No account is taken of the income-related reduction in the general tax credit of 2% * €5,000 = €100. However, this allowance is calculated as part of the income tax return, meaning that the aforementioned amount of €100 must be paid in addition on that return.
If the taxpayer in our example is a self-employed person, no payroll tax is, of course, deducted from their income. However, almost all self-employed individuals received a provisional tax assessment for 2014 at the end of 2013. This provisional assessment did not take into account the income-related reduction in the general tax credit at all. If this self-employed person has an income of €45,000, they will have to pay an additional €507 in income tax and national insurance contributions following their 2014 tax return (see the calculation above). The maximum amount to be refunded is, of course, equal to the difference between the maximum and minimum general tax credits: €2,103 – €1,366 = €737 (rounded to €750 in press articles).
All this was already known when the measure was adopted in 2013 under considerable political pressure following the near collapse of the Rutte II Cabinet, but it has only recently received the attention it deserves during the parliamentary debate on the 2015 Tax Plan bill.