Tax income averaging

Jun 17, 2016

Our high progressive rates in box 1 of our individual income tax is dependent on the income derived in a particular year. This is disadvantageous in case of fluctuating income. For example if one derives an income of 0 in year 1, €20,000 in year 2 and €100,000 in year 3, that person pays a lot more Dutch income tax than someone who earns a steady €40,000 each year (for example in the years 2011, 2012, 2013 this difference is €6.036 in tax).

For this reason a taxpayer may request a so-called averaging refund covering a three year-period. If the calculated average tax over a three year-period is less than the actual paid tax but more than the non-refundable threshold of €545, a refund is due (in the above example: €5.491, i.e. €6.036-/-€545).

One should think of an averaging request in the following situations:

  • An entrepreneur or freelancer with fluctuating income;
  • Becoming unemployed;
  • Receiving a taxable severance at the end of employment;
  • Another ‘spike’ in the taxable income during a particular year;
  • payment or receipt of lump sum alimony.

The request for averaging generally needs to be requested within 36 Months after the date that the last tax assessment has become final.

The year of immigration and the year of emigration can in principle not be part of the averaging request and special rules apply for the year whereby the taxpayer reaches the age of 65.

The taxpayer may choose which years will be used. However, a particular year may be used only once. It is therefore sometimes better to strategically wait a year with the request for a possible higher refund.

No interest is refunded, it is therefore wise to submit a request as soon as possible after you have determined the most beneficial applicable years.

The averaging request needs to be accompanied by a calculation. I can help you with the request and calculation. Unfortunately the averaging-tool on the ‘belastingdienst-website’ is only available in Dutch.