Tax and benefits: what you need to know when you retire or are retired.
Pension and taxes
Your pension benefit is income. You pay taxes and national insurance contributions on it (wage tax). We automatically deduct the wage tax from your benefit and pay it to the Tax Administration. You therefore receive a net amount from us. The wage tax is included in box 1.
Good to know: After your AOW age, the payroll tax rate is lower. This is because one of the components of the wage tax is the AOW premium, and you no longer have to pay it after your AOW age. We process this automatically in your monthly benefit.
Income-related Zvw contribution
In addition to the payroll tax, we deduct an income-related Zvw contribution from your pension. This is a compulsory percentage of your gross pension. That percentage is determined annually. The Zvw contribution is used to finance healthcare costs in the Netherlands, in addition to the healthcare premium that you pay to your healthcare insurer.
Wage tax credit
Everyone living in the Netherlands may apply wage tax credit to their income. At the time wage tax credit is applied, less tax is withheld from that benefit each month. You determine the income to which this discount is applied. Generally, it is recommended that you apply the rebate to your highest income. But beware: with multiple incomes, applying payroll deduction may cause you to have to pay taxes later on your tax return. This is because the authority that applies the deduction each month does not know your total income and how much deduction you are entitled to in total. You may then receive too much rebate.
Do you have the rebate applied to multiple benefit agencies at the same time? If so, you will also receive too much discount. Did you receive too much discount? If so, you must repay the excess amount received to the Tax Office on your annual tax return.
You can choose not to apply a monthly payroll tax credit, but instead reclaim the payroll tax retroactively through the annual tax return. Read more about the wage tax credit with multiple incomes here.
You can apply for or change payroll tax credits through MySPIN. Log in with your DigiD and then go to Directly arrange. Then click on ‘Adjust wage tax credit’.
AOW and taxes
The AOW is a basic government pension. You pay taxes on it. Do you only get AOW? The age at which you receive AOW depends on your date of birth. Good to know, you pay more tax on your pension before your AOW date than after it.
Tax in box 2 and box 3
Your pension benefit falls in box 1, but income tax also includes box 2 and 3. It depends on your situation whether you have to pay tax in box 2 and box 3.
In box 2, you pay tax on the income you derive from a substantial interest. You have a substantial interest if you (together with your tax partner) directly or indirectly own at least 5% of the shares in a company. Do you not? Then you probably do not pay any tax in box 2.
Do you have savings or investments? Then you will pay box 3 tax on them if you exceed the exemption. This limit is determined annually. Are you under the exemption? Then you will probably not pay any tax in box 3.
Practical tips on payroll taxes
- Want to calculate how much tax you have to pay on a certain income, or on your total income? Then use the Wage Tax Calculation Tool;
- Do you have multiple benefits (e.g. AOW and pension)? Then each institution deducts tax separately. Sometimes the total amount is too little, because your total income then falls into a higher tax bracket. As a result, you may have to pay extra when filing your tax return. You can avoid this by requesting a provisional assessment from the Tax Administration;
- At belastingdienst.nl, you can see your previous returns and possibly your preliminary assessment;
- Need help with your taxes? Get advice from a financial advisor or contact the Tax Office through the Tax Phone at 0800-0543 (toll-free). Some municipalities also help you with your tax return for free.
Supplements
You may also be entitled to supplements when you are retired. Below you can read a few examples:
- Care supplement – You can get a supplement for your health insurance. Whether you get this depends on your income;
- Rent supplement – Even if you are retired, you can get rent allowance. It depends on your income, rent and age;
- Supplemental Income Support (AIO): Do you have little AOW and no or very low other income? If so, you can apply for supplementary income support through the SVB.
Practical tips on surcharges
- Supplements are usually paid first as an advance payment. The final calculation follows later, usually in the following year. It may happen that you get something back or have to pay something back;
- Does your situation change (e.g. cohabitation, an additional pension, a changed income)? Report this immediately, or you may have to pay back supplemental benefits.