Our employees often ask why the overtime tax is so high and whether it makes sense to make overtime at all. Overtime pay depends on the CAO of the employer or the company you actually work for. The tax paid on overtime pay is much higher than the tax paid on regular hours, and takes away practically half of the money earned.
In this article you will not find any ‘tricks’ that will allow you to bypass overtime tax, because they simply do not exist. We will explain the basic principles of calculating tax in the Netherlands, why the overtime tax seems so high, and whether it pays to do it.
Because 2019 brings major changes in tax regulations, we update this article and provide a comparison between 2018 and 2019, so you can see measurable effects of the changes.
Overtime is, in fact, taxed normally, according to general tariffs. It seems high, because tax paid on regular earnings, stated on your payslip, as normale uren or toeslaguren, is exceptionally low. This is because of tax credits that reduce the amount of the tax you pay. So why do tax credits do not apply to overtime tax?
In short, tax credits are calculated on the yearly income basis. Yearly income is calculated on the basis of regular weekly income. Overtime is not taken into account because it is difficult to predict how much overtime a person will work in a year. Overtime, as well as vacation money and bonuses belong to a category of special payments, known in the Netherlands as bijzondere beloningen. Tax credits do not apply here.
The answer depends on your priorities, current situation and future employment plans. The Dutch tax law is rather complex, so it is difficult to give a simple answer. Most likely, however, you will neither receive return nor will you have to pay extra. It can happen if your earnings change drastically and make you qualify for a lower or higher tax threshold.
Probably the best answer is cold calculation. Suppose someone works 40 hours a week for € 10/h gross and has a 125% overtime rate. Let’s call him Adrian. On a regular basis Adrian earns €400 gross per week,
In 2018, earning €400 per week gross, Adrian paid weekly taxes of €41.17. Net he earned €358.83 per week, which gave a net rate per hour of €8.97.
For comparison, his net earnings from 40h of overtime amounted to €272.35 net, or €6.80/h. So if Adrian regularly did 5h of overtime a week, this was an extra €34 a week, €136 a month, and about €1700 a year.
Even though a lot of companies introduced pay-rise this year, let’s assume that Adrian got unlucky and still earns €10/h. He still earns €400 per week before taxes, but with changed rules he will get €365 net per week, and consequently his net hourly pay will be €9,12, so €0,15 more than in 2018.
Adrian’s net earnings from 40h of overtime in 2019 will amount to €283,75, or €7,09 per hour. So if Adrian regularly does 5h of overtime a week, he will earn extra €35,5 a week, €141,9 per month, and about €1844 per year.
In the Netherlands, the basis for calculating tax is gross annual income. That is why why we definitively settle tax once a year. But we pay an estimates tax amount with each weekly payment to avoid paying a big amount once a year.
This is how it works for Adrian with his 40h a week paid €10/h gross. In a week that’s €400 gross. In a year, which has 52 week, it’s €20800 gross.
€10 x 40h x 52tyg = €20800
What taxes will Adrian has to pay depends on the tax threshold Adrian’s earnings fall into.
In 2018 the Dutch tax system operated on 4 tax thresholds.
In 2018 Adrian earned €20800 gross, so €658 more than the maximum amount of the first threshold, which is €20 142.
€20800 – €20142 = €658
So Adrian will pay 36,55% taxes on €20142 (first threshold), and €40,85% on €658 (second threshold). Yearly tax (without any tax credits) will amount to €7630,70, which divided by 52 gives €146,7 of tax per week.
36,55% x €20142 + 40,85% x €658 = €7630,70
€7630,70 : 52tyg = €146,7
From the last amount tax credits will be deducted.
In 2019 the Dutch tax system operates on 3 tax thresholds.
The yearly income amounts don’t change, so the procedure remains similar.
€20800 – €20142 = €658
According to new rules Adrian will pay 36,65% taxes on €20142 (first threshold), and €38,10% on €658 (second threshold). Yearly tax (without any tax credits) will amount to €7632,74 which divided by 52 gives €146,8 of tax per week.
36,65% x €20142 + 38,10% x €658 = €7632,74
€7632,74 : 52tyg = €146,8
This amount turns out to be slightly higher than in 2018, but there is nothing to worry about, because in the two tax credits, heffingskorting and arbeidskorting are also higher, which means in the end you will pay less taxes. Take a look below.
Everyone who works in the Netherlands has the right to tax credits. There are two types of tax credits in the Netherlands: heffingskorting and arbeidskorting. Arbeidskorting applies to tax on work-generated income, heffingskorting applies to tax on income generated from work and other sources. The amount of the tax credit also depends on the gross yearly income.
Adrian’s yearly income is estimated at €20800, and the tax on this income is €7630,70.
To calculate heffingskorting we need the formula from the second row of the heffingskorting table for persons earning between €20142 a €68507.
€2265 – 4,683% x (€20800 – €20142) = €2234
Arbeidskorting is easier. It’s €3249.
You just need to to deduct these two amounts from the yearly tax amount €7 630,70 to get the amount that Adrian will pay in taxes in 2018.
€7630,70 – €2234 – €3249 = €2147
€2147 is the amount Adrian needs to pay for a year. Divided by 52 weeks, it is as low as €41,3.
€2147 : 52tyg = €41,3
Adrian’s yearly income is estimated at €20800, and the tax on this income is €7632,74.
To calculate heffingskorting we need the formula from the second row of the heffingskorting table for persons earning between €20384 and €68507.
€2477 – 5,147% x (€20800 – €20384) = €2455,59
To calculate arbeidskorting we need the formula from the second row for the yearly income between €9694 and €20940
€170 + 28,712% x (€20800 – €9694) = €3358,75
You just need to to deduct these two amounts from the yearly tax amount €€7632,74 to get the amount that Adrian will pay in taxes in 2019.
€7632,74 – €2455,59 – €3358,75 = €1818,40
€1818,40 is the amount Adrian needs to pay for a year in 2019. Divided by 52 weeks, it is as low as €35.
€1818,40 : 52tyg = €35
In 2018 taxes on yearly gross earnings of €20800 equaled to €2147, while in 2019 the tax will equal to €1818,40. That’s extra €328 in your pocket per year, €25 per month, and €6,32 per week.
The overtime tax is charged according to bijzonder tarief. How much bijzonder tarief do you pay? You can check that on your payslip. The amount of overtime tax also depends on the amount of gross annual income. A table for that you can find you the official website of Belasting.
If, like Adrian you earn between €20143 and €33112 your bijzonder tarief will be 45,53%.
If Adrian does on average 5 h of overtime a week he will earn €62,50 gross. 45,53% of this amount equals €28,45, which means that in the end Adrian will get €34.
125% x €10 x 5h = €62,5
45,53% x €62,5 = €28,45
€62,5 – €28,45 = €34,05
Also bijzonder tarief changes in 2019, and for Adrian’s earnings is 43,25%.
If Adrian does on average 5 h of overtime a week he will earn €62,50 gross. 43,25% of this amount equals €27,03, which means that in the end Adrian will get €35,47.
125% x €10 x 5h = €62,5
43,25% x €62,5 = €27,03
€62,5 – €27,03 = €35,47
As you can see the taxes go down in 2019 and the change is especially beneficial to people earning between €20143 and €68507, so if you fall within these brackets you can expect a bigger net wage and more money in your pocket.
Also, the tax on irregular earnings such as overtime, bonuses, or vacation money is lower.
That’s good news, right?