Payroll Tax Deduction for Employees and Employers

As either an employee or employer, there are certain things you need to be aware of when it comes to labour law. In this case, it's payroll tax deduction. What exactly is it, who is it for, and how do you apply for it? It's actually very simple. We have all the information you need, right here. Keep on reading.

Image of people discussing payroll tax deductionWhat are payroll taxes (loonheffingen)?

Payroll taxes consist of 4 things:

Wage tax

If wage tax is withheld, the employee doesn’t pay, or pays less, income tax. You would withhold the national insurance contributions, and pay these to the Tax and Customs Administration.

National insurance contribution

This means national insurance schemes. Basically, employees need to be insured against financial consequences of things like death, medical expenses, old age and costs of children. This is required by law. The schemes include:

  • General Old Pensions Act (AOW)
  • Surviving Dependants Act (Anw)
  • Long-term care act (Wet langdurige zorg, Wlz)
  • General Child Benefit Act (AKW)

Employed person’s insurance contributions

These are social security insurance schemes that are also required by law. Here, employees need to be insured against financial consequences of illness, disability, and unemployment. You bear the full cost of these contributions as the employer. The schemes include:

  • Sickness Benefits Act (ZW)
  • Invalidity Insurance Act (WAO) or Work and Income according to Work Capacity Act (WIA)
  • Unemployment Insurance Act (WW)

Income-dependent contribution in accordance with the Health Care Insurance Act

Employees need to pay a minor contribution to their health care insurance. As the employer, you also need to pay a contribution for your employee in accordance with the Heath Care Insurance Act (Zvw).

Payroll taxes are calculated on the wages, which is everything the employee receives according to the employment contract. This can be calculated for each wage period.

Image of person reading payroll tax deduction formWhat is payroll tax deduction?

This is the lowering of the wage and/or national insurance contributions. As an employee, you are eligible for a discount on your tax. What is included in this tax credit depends on what type of wages you pay and the employee’s age.

For employees: if you work for more than one employer at the same time, you can only ask one of them for payroll tax deduction. If you do apply for both, you will get too high a discount, which you would then have to pay after tax later. However, if you work with more than one employer throughout one year, you can apply for payroll tax deduction with each.

How to get payroll tax deduction

To do this, you need to ask for this discount from your employer or agency, using the form ‘Model return data for payroll fees’. You receive more pay, they pay less tax. As an employer, you can only apply for payroll tax deduction when your employee has given you the written request.

As an employer, when you get new employees, you have to ask for certain information. This includes:

  • Basic information like their name, initials, date of birth
  • Their BSN number (citizen service number)
  • Their address, postcode, and city (if they do not live in the Netherlands, then you need their region)
  • And lastly, the request to apply for the payroll tax deduction

You can read more about labour law and what that includes, like working insurance, types of employment contracts, and types of work permits.