Application of the wage tax credit in the payroll administration
How is the wage tax credit applied in the payroll administration? What information is required? And when should I have the wage tax credit applied and when not? This article focuses on answering these questions.
Required employee data for payroll administration
If an employee starts working for an employer, this employee must be included in the salary administration of the employer. It is important that this is done correctly and completely based on the data provided. An employee must provide a number of details prior to the start of employment or on the first working day (before starting work) such as:
- Name and initials
- Citizen service number (BSN)
- Address, zip code and city
- Country of residence and region if the employee does not live in the Netherlands
- Date of birth
- A request to apply the wage tax credits in the payroll
To submit the above information, an employee can use the form “Model Opgaaf gegevens voor de loonheffigen” which can be found on the website of the Dutch Tax Authorities. With this form all relevant information can be collected in one go. It is therefore important for the correct processing of the payroll administration that the form is completed correctly and completely by the employee and that the form is provided with a date and signature. The employer must ensure that the employee completes the form correctly. The way of providing the relevant information is form-free by the way.
Request for application wage tax credit
If an employee requests application of the wage tax credit, this must be processed accordingly in the payroll administration. As a result of the application of the wage tax credit, less wage tax will often be withheld from the employee on a monthly basis. In some cases, such as weekend or holiday jobs, no wage tax will be withheld at all. We refer to our explanation of the tax credits for the reason behind this.
Apply wage tax credit or not?
Before the start of employment every employee is faced with the choice whether or not to apply the wage tax credit. What is best for the employee? For a person who works for one employer, it is normally advisable to have the wage tax credit applied in the salary administration. This way, the benefit of the general levy rebate and the labor rebate (and possibly any other levy rebates) can be enjoyed during the year and there is no additional refund in the income tax return (unless of course there is an entitlement to other levy rebates or personal deductions etc.). If someone works for multiple employers or receives income from different sources (as can be the case with pension payments), the wage tax credit should only be applied once or not at all. Otherwise there is a risk that additional payments are due based on the income tax return. It is then wise to have the wage tax credit applied at the employer (or authority / insurance company) where the highest income is earned.
If you have any questions about applying the wage tax credit in the salary administration, feel free to contact our specialists.