Your 2017 IB tax return: tax credits

Discount at the Tax Office? Yes! No actions along the lines of “From/for” or “2 for the price of 1“. However, amounts you may deduct from your income tax total.
The payment discount is also a real discount.

Tax credits

We have quite a range of tax credits in the Netherlands. We cannot possibly cover them all in detail in this article.

The most important, of course, is the general tax credit. Every domestic taxpayer is entitled to this. For foreign taxpayers, see our article Tax credit foreign taxpayer.

A simple calculation shows how the tax credits fit into the calculation of income tax due. For the calculation of tax on boxed income, please refer to our article on The tariff.

Income-related tax credits

But the Netherlands would not be the Netherlands if we did not make it all even more difficult. This is because the general tax credit and the employment tax credit are income-dependent. The higher your income from work and home (box 1), the lower the rebate.

You are entitled to the full general tax credit (of €2,254; for AOW recipients, €1,150) if your income in box 1 is €19,982 or less. If your income is higher than that amount, your reduction decreases by 4.787% (for AOW recipients: 2.441%) of every euro above € 19,982. If your income is above € 67,067, your general tax credit amounts to: nil.

A numerical example:

Labour discount

Everyone who receives income from present employment is entitled to the labour tax credit. Present labour means that you actually performed labour during the period.

The calculation of the employment tax credit is even more complex than that of the general tax credit. Up to an income from present employment of €32,444, the employment tax credit is steadily increasing (in 2017, this discount can reach €3,223; for AOW recipients; €1,645). And at higher incomes, the labour discount is then reduced again to zero.

NOTE: we are talking about different income terms. For the general discount, it is about income in box 1. While for the labour discount, it is the income from present employment that matters. For the elderly tax credit, you have to look at the aggregate income (see below).
They can't make it any more fun at the tax office!

Payment to lowest earner

When one of the two partners does not have sufficient income to securitise his or her general tax credit, that credit is paid. The condition is that the partner's income is such that the rebate could have been offset against the tax due on it. In the classic family situation, it is often the woman who has no (or little) income. That is why this scheme is also referred to as the “right-of-way subsidy”.

The payment of the general tax credit to the least-earning tax partner is being phased out. In 2017, a maximum of 40% of the rebate will still be paid out (40% * €2,254 = €901).
For taxpayers, born before 1 January 1963, this phase-out does not apply.

Parents

For those with children, there is still the income-dependent combination discount (the other tax credits linked to having children have since been abolished again). To qualify for the rebate (maximum €2,778), the parent must:

• actually work for pay (enjoy a labour income of €4,895 or more, or be entitled to the self-employment deduction as an entrepreneur);
• maintain a joint household with a child who is not yet 12 years old on 1 January of the year.

For tax partners, the partner with the lowest income gets the discount. PLEASE NOTE: that partner must then work for pay himself.

Elderly

Elderly refers to those who are entitled to AOW on 31 December of the tax year. For them, there are two specific rebates:

• senior citizen discount;
• single elderly person discount.

The elderly tax credit is income-dependent. Up to a combined income of €36,057, the discount amounts to €1,292. If the aggregate income is higher, the discount amounts to €71.

The single elderly person discount is a fixed amount (€438). This discount is for the elderly person entitled to the AOW for single persons.

Payroll tax credit

When deducting payroll taxes, not all tax credits are taken into account. The wage tax credit includes only the:

• general tax credit;
• labour discount;
• senior citizen discount;
• single elderly person discount (processed only by the SVB);
• young disabled person discount;
• lifetime leave discount.

You must tell your employer if you want the payroll tax credit to be taken into account.

The other discounts, if applicable, must be claimed in your income tax return.

REMEMBER: if you have multiple jobs and you have the wage tax credit taken into account in all of them, your income tax return may result in an (unexpectedly) very large additional amount to be paid.

Payment discount

Payment discounts are given by the Inland Revenue on provisional income and corporate tax assessments:

• on which tax is payable and
• imposed in the year to which they relate and
• paid in one lump sum before the first due date.

Suppose you receive a provisional income tax assessment 2018 from the Inland Revenue in December 2017. Date of assessment is then 1 January 2018. The income tax due is €2,000, payable no later than 15 February 2018.

The payment discount is calculated based on the recovery interest rate. That rate is currently: 4%.
The annualised interest rate is: 4% * €2,000 = €80. Calculated using the average interest rate, being €80 / 2 = €40. The payment period comprises 313 days (from 16 February 2017 to 31 December 2017), so the payment discount comes out to (313/360) * €40 = €35.

You will then pay by 15 February 2018: €2,000 -/- €35 = €1,965.
With the final income tax due, you offset €2,000 in your IB return. Your actual benefit is then €35.
That is, at current interest rates, considerably more than the interest you receive if you leave the money in your (savings) account to pay as late as possible.
You should then be able to spare the full amount of the provisional assessment immediately.