Earn from the tax authorities – tax interest

Earning money from the tax authorities in 2020 and 2021 is becoming increasingly difficult. This can be done with tax interest as compensation for the missed interest and deductions. A smart joint tax return with your tax partner can also save you money. What is the tax rate for interest? If you receive tax money back, this may be with interest. Saving with the tax authorities is slightly less advantageous with the new tax interest rules, but still worthwhile. In any case, it is better than paying interest to the tax authorities. You can also earn some pocket money with your tax return.

How can a smart tax return make you money?

  • The Tax Authorities and the tax assessment
  • Three ways to earn from the Tax Authorities
  • How much is the tax interest?
  • Do not apply for a provisional income tax refund if you receive a refund
  • Reduce your mortgage if possible
  • Pay your provisional income tax assessment for the current year quickly
  • Filing a joint tax return has many advantages
  • Key lock

The Tax Authorities and the tax assessment

Most of us don’t like paying taxes and think we pay too much. But you can also earn from the Tax Authorities. The condition is that you, as a private individual, have some cash and can wait until you get your tax money back. With interest of course.

Three ways to earn from the Tax Authorities

There are three ways to make money when interest rates are high:

  1. Do not apply for a provisional income tax refund;
  2. Reduce your mortgage if possible;
  3. Pay your provisional assessment for the current year quickly.

How much is the tax interest?

If you receive money back, it will be equal to the tax interest plus your average benefit of 1.2% on your assets. The tax interest from the tax authorities is 4%, but can be adjusted every quarter:

Tax interest and tax interest from the Tax Authorities in 2020 and 2021:

year

quarter 1

quarter 2

quarter 3

quarter 4

2021

0.01%

0.01%

0.01%

0.01%

2020

4%

0.01%

0.01%

0.01%

2019

4%

4%

4%

4%

2018

4%

4%

4%

4%

2017

4%

4%

4%

4%

2016

4%

4%

4%

4%

The reduction from the second quarter of 2020 (June and July 2020 respectively, depending on the tax) until December 31, 2021 is a measure as a result of the corona pandemic.

Do not apply for a provisional income tax refund if you receive a refund

If you have quite a few deductible items or want to get your tax credits paid out, you are probably inclined to request a provisional refund. Preferably in monthly installments. That seems sensible, because you will then have access to the refund sooner. But if you don’t and save it, the benefit is much greater. You will receive the money later and in one go, but plus interest. This interest often exceeds that of a savings account and is also not taxed. Moreover, the Tax Authorities cannot go bankrupt.

Reduce your mortgage if possible

The Hillen Act ensures that extra mortgage repayments can also be extra beneficial. In short, this law means that the addition to the notional rental value cannot be higher than the deductible items for the owner-occupied home, the mortgage interest deduction and any purchase costs for a home. The lower the mortgage interest deduction, the greater your benefit. That sounds contradictory, but the Hillen law ensures that. Especially if your mortgage is no longer that high, extra repayments will yield you more than if you leave your money in a savings account with a low savings interest rate.

Pay your provisional income tax assessment for the current year quickly

It is good to notice that the Tax Authorities are increasingly in a hurry to collect tax payments. As a result, it is becoming increasingly common for you to receive a provisional income tax assessment for the current year. That can of course be quite a shock, but you can use it to your advantage. It saves on tax interest and you often also get a discount if you pay in one go early in the year. Decide for yourself whether you think the discount is large enough. If not, you can always pay in installments.

Filing a joint tax return has many advantages

Quite a few partners only allow the highest-earning tax return to be filed, because the reasoning is that they will receive the most back from the tax authorities. However, that reasoning is not always correct. Two examples to demonstrate this, but there are many more:

  1. Suppose your partner has no income. Then the partner is also not entitled to tax credits. By now filing a joint tax return with you as a partner, the partner will receive a tax refund. Consider, for example, the tax subsidy.
  2. Suppose you have more assets than the exemption in box 3 of income tax, which means you have to pay wealth tax. If you file a joint tax return and the partner has less assets than the exemption, you transfer part of your assets in box 3 to your partner in the tax return. As a result, you pay less and perhaps no more wealth tax. This slide could also be beneficial for some tax credits.

A joint tax return often means more tax refunds due to the many tax credits and a smart division of deductions and assets.

Key lock

In both cases you earn from the tax authorities. If the provisional assessment later deviates significantly from what you actually had to pay and, for example, should have been much lower due to changed circumstances, you will later receive the excess payment back with interest. Finally, it should be noted that it is often worthwhile to object to municipal levies, such as the WOZ and OZB real estate assessment. That can also save you a lot of money for many years to come.

read more

  • Tax authorities and corona: the tax measures
  • Sliding with deductions and distribution