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Full time employee and tax to be paid in income tax return

Full time employee and tax to be paid in the income tax return, how is that possible? The employer should have withheld enough tax.

Full time employee and tax

In the Netherlands the system is such that when you are a full time employee, the employer withheld exactly enough tax over your salary. The result is that you can fully spend your net salary. At the end of the year no additional tax is asked by the tax office to be paid.

Sometimes a full time employee is asked to pay additional tax, how is that possible?

Often we see that the employer has not paid enough attention. There is the situation an employee starts during the year employment with this employer. The payroll is done per calendar year. If the payroll is transferred from the one year to the other, the expected annual income needs to be adjusted. Based on that income, tax is calculated.

An employee starting in for instance May only has eight months of income. If that annual salary is used in the next year, where the employee works twelve months, not enough tax is withheld. How is that possible? The lower the salary, the higher the tax credits. If the predicted salary is lower than the actual salary, too much tax credits are used. Those are to be paid back in the income tax return.

Bonuses, RSU, share options, stock options

There are many names for incentives promised to employees. The one thing them have in common: it is all taxed salary. If an employee earns less or around the EUR 70.000 gross (first tax bracket) and is then given an incentive (second bracket is entered with higher tax), the employer should anticipate this. This is done in adjusted in the annual expected salary.

Full time employee and tax

The handbook of the Dutch tax office forbids updating the annual salary during the year. Fortunately the handbook is often seen of the tax office opinion, not a law. And if sometimes the annual salary is not updated during the year, the employee ends up with an unexpected tax bill.

Full time employee tax assessment – court case

A tax payer was charged with tax, even though she was a full time  employee during the tax year. She disagreed with the tax to be paid and went to court. The court dismissed her claim.

The reason for the dismissal is that she had multiple employers in a row during the tax year. Each employer calculated the correct amount of tax. However, if in the tax return the one income is put on top of the other, more tax was to be paid and less tax credits could have been applies.

The court ruled that each employer made no mistake in the payroll calculations, but that it is normal in a year that you have more than one employer at a time, to pay additional tax.

Tax is exciting

We think tax is exciting. We understand you are not excited to pay additional income tax. If we are asked about the cause and we see that the employer created this assessment, it does not feel nice to point to finger. We made no mistake, your employer did. Never a nice message.

The employer does not like us either if our remark is forwarded, we can understand that. We do hope the employer will pay more attention in case of bonus, full year employment or salary increase. Mistakes are made by humans, and process tax is still a job done by humans. Even though software is also not mistake free.

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