What is income tax?
Learn how income tax works in the Netherlands, including tax boxes, brackets, and how different types of income and assets are taxed.
Each country has its own income tax system, tax rates and rules about what counts as taxable income. In this lesson, we’ll focus on how income tax works in the Netherlands.
What is income tax?
Income tax is the tax you pay on money you earn. This usually includes your salary, business profit, pension or benefits.
Which types of income are taxed?
In the Netherlands, income tax applies to:
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Your salary
-
Business profit if you are self-employed or entrepreneur
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Social benefits
-
Pension income
If you have savings, investments or other assets such as a second home, these are also taxed. However, the way this works is different from regular income.
The Dutch system: boxes and brackets
The Dutch income tax system uses two key concepts: tax boxes and tax brackets. Different types of income are grouped into three tax boxes. Each box has its own rules and tax rates.
| Box 1 |
Box 2 |
Box 3 |
| Income from work and home |
Income from a substantial interest |
Income from savings and investments |
| Includes salary, business profit, income related to your main residence and AOW (state pension). | Applies if you own at least 5% of shares or voting rights in a company. | Applies to assets such as savings, shares, ETFs or a second home. |
Every box has its own tax brackets. These determine how much tax you pay based on your income level. In the Netherlands, higher incomes are taxed at a higher rate than lower ones. This is called a 'progressive tax system'.
Tax brackets in box 1
In Box 1, this progressive tax system means higher income is taxed at higher rates, but only on the part of your income that falls within each bracket. For income tax in Box 1 (“work and home”), your income is divided into different tax brackets. Each part of your income is taxed at a different rate.
For example, in 2025, the tax brackets were:
| Tax bracket |
Taxable income (work and home) |
Rate |
| 1 | Up to €38,441 | 35.82% |
| 2 | €38,441 to €76,817 | 37.48% |
| 3 | Above €76,817 | 49.5% |
Sophie earns €47,000 per year from work (Box 1 income). This places her in tax bracket 2. But that doesn’t mean all her income is taxed at that rate.
Instead, her income is taxed in steps:
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She pays 35.82% on the first €38,441
-
She pays 37.48% on the part above that
Even though Sophie is in tax bracket 2, only part of her income is taxed at the higher rate. If Sophie reaches the state pension age (AOW) and retires, different (usually lower) tax rates may apply.
Fig. 1 Income tax example according to 2025 brackets
Important to remember about filing your return
You always file your tax return for the previous year. That means:
-
In 2026, you use the 2025 tax rates
-
In 2027, you use the 2026 tax rates
Next year you’ll need the 2026 brackets, which are:
|
Tax bracket |
Taxable income (work and home) |
Rate |
|
1 |
Up to €38,883 |
35.75% |
|
2 |
€38,883 to €78,426 |
37.56% |
|
3 |
Above €78,426 |
49.5% |
Income from your owner-occupied home
Your main residence also falls under box 1. Even if you do not rent out your home, the Dutch tax authorities assume you receive a notional benefit from owning it. This is called the eigenwoningforfait (imputed rental value). It’s calculated as a percentage of the WOZ value of your home and added to your taxable income in box 1.
If you own a second or third property, these are taxed in box 3 instead.
Which types of income fall under box 1? (Multiple answers possible)