During the parliamentary debate on the 2019 tax plans, State Secretary Snel outlined the options available to employers for paying tax-free study allowances to their employees’ children.
Opportunities
This follows questions raised by CDA MP Omtzigt. He sees three possibilities:
- taxable income that is not taxed because the child is claiming the general tax credit;
- taxable income, in addition to income from a part-time job, from which the child can deduct education costs;
- The employer makes use of a specific exemption.
Snel confirms the first two options. However, the targeted exemption is not possible.
A study grant is a form of pay for the child
In a ruling In 2000, the Court of ‘s-Hertogenbosch ruled that the study grant constitutes wages for the employee’s child. However, this is subject to the condition that the child receives the grant directly. The parent must not be entitled to it.
As a result, the student grant is taxed as income in the child’s name. Like any other taxpayer, the child is entitled to the general tax credit, which means that, in most cases, the child pays no net income tax or payroll tax.
Deduction for study costs
Many children receive wages from a part-time job. In such cases, the study allowance that the child receives from the parent’s employer is added to the wages from that part-time job for the purposes of income tax. In most cases, the tax credits are not high enough to prevent income tax from being due.
However, the child may be entitled to a tax deduction for education expenses. This deduction must be claimed in an income tax return. A threshold of €250 applies. Outside the standard period of study, a maximum of €15,000 applies.
Expenses incurred in connection with training or study undertaken with a view to earning an income are deductible. The deduction is limited to the following types of costs:
- tuition fees, course fees, university fees, examination fees and PhD costs;
- learning materials and personal protective equipment required by the educational institution.
Education expenses must be borne by the child. This means that the costs must actually be paid by the child. The fact that the employer reimburses the costs is not an issue in this regard, as that reimbursement is subject to payroll and income tax.
If the child is entitled to student finance or if his or her parents are entitled to child benefit, the education expenses are not tax-deductible.
Directed exemption
The employer cannot apply the specific exemption to the remuneration paid to the child (the study grant). This is because remuneration from previous employment cannot be designated as a component subject to final withholding tax under the work-related expenses scheme (WKR). Remuneration from previous employment is remuneration for which no work is performed. The child does not receive the study grant as remuneration for work performed by him or her.
Where the child actually carries out work for the employer, the specific exemption for study and training may be applied. After all, the child is then an employee in their own right and receives remuneration from current employment.
Study Fund
Employers can set up a study fund in conjunction with their employees, from which tax-free payments are made. We explain the rules governing such a fund in our article Staff fund also under the WKR.