Wage tax is a term you often hear, but what does it actually mean? And why is it important?

What is wage tax?

Wage tax is the collective term for the tax and premiums you pay on your gross salary. Officially, you pay the income tax yourself, but the employer has a withholding obligation. This means that your employer is responsible for deducting it from your salary. You can see it as a kind of advance payment you make on your income tax. This way, you don't have to pay everything at once but pay a little each month. The wage taxes consist of the following levies:

• Income tax: This is a tax on your income.
• National insurance contributions: These contributions are for social security benefits such as AOW (General Old Age Pensions Act), ANW (General Surviving Relatives Act), and Wlz (Long-Term Care Act).
• Employee insurance contributions: These contributions insure employees against loss of income if they become unemployed, incapacitated for work, or sick. These employee insurances are WW (Unemployment Insurance Act), WAO (Disability Insurance Act), WIA (Work and Income according to Labour Capacity Act), and ZW (Sickness Benefits Act).

Why do we pay wage tax?

Paying wage tax is important for our society and offers both individual and collective benefits. You might think: 'why is this necessary?' But actually, it's quite useful. The important reasons why we pay wage tax are for: 'Public facilities, social justice, stability and security, and Investing in the future'.

What is the role of the wage tax credit?

The wage tax credit is a reduction on the tax you pay on your income. The purpose of the wage tax credit is to ease the tax burden, stimulate purchasing power, and distribute the tax burden more fairly.

In short, although paying wage tax can sometimes feel like a burden, it is necessary for a well-functioning and prosperous society. You can see it a bit like 'cooperation': we do it for ourselves, but also for each other. Would you like to know more about wage tax and the wage tax credit? Please visit the website of the Tax Authorities ('Belastingdienst').