Apply for averaging from the Tax Authorities

People with a fluctuating income could save money with averaging. This means that the income from three tax years is added and divided by three. Taxation is then based on average income. In the Netherlands we have a progressive tax system. As a result, people with a higher income pay more taxes. If you have a higher income in a certain year due to, for example, a golden handshake, you may have to pay tax for that year in a higher tax bracket. In that case, you can spread the additional income over three years by averaging, which reduces the tax burden. Employees who switch from a full-time job to a part-time job can also save money by requesting averaging from the Tax Authorities.

Progressive taxation

This method of taxation means that people with the highest income pay the most taxes. The lowest incomes up to approximately €18,000 gross per year must pay a rounded tax of 34 percent. The higher the income, the higher the tax rate must be paid on the excess. The highest levy must be paid on the excess over 54,000 (rounded), namely 52 percent.

How does averaging work?

For example, in a certain year you may work more. During the first two years you earned 12,500 gross per year. In the third year you start working full-time and receive 20,000 annually. In the third year, your increased income will partially place you in the 41% tax bracket, while in the previous years you were in the 34 percent bracket. By requesting averaging you will receive an average gross annual income of 15,000. As a result, you will be taxed in the lower tax bracket in the third year. The tax authorities will now determine how much tax and premiums you have actually paid, and they will compare this with how much you would have to pay after averaging. You will receive a refund for any excess taxes and premiums paid.

What are the conditions for averaging?

You can only average over three consecutive years, and those years may not have been included in a previous average. You must submit the request within three years of receiving the final assessment for the last year of the three that will be included in the averaging. The averaging relates exclusively to the income in box one. A negative income cannot be taken into account, you must assume zero in that year. You will not receive the first 545 of the refund after mediation. This is to prevent requests from being received where the benefits are small.

Temporarily higher or lower income

You may receive varying income for various reasons. If you start working significantly less or more, you can request averaging. In case you are fired and you receive a golden handshake from your employer, the amount is considered income in the year of receipt. By averaging you can receive large amounts back.

How should I submit the request?

The Tax Authorities will not inform you of the possibility of using resources. You must take action yourself by sending a letter to the tax unit to which you fall (see link for addresses). In the letter you must explain what you want and you must add a calculation. The calculation must show that you are entitled to a refund. Make sure that you include your Citizen Service Number in the letter.