Earned payroll tax reduction and additional tax payments on your income tax return

Since April 1st, you can file your 2025 income tax return. For some, this means receiving a refund. For others, it means having to pay additional taxes. There are various reasons for these additional payments, such as extra income in tax brackets 1, 2, or 3 in addition to your salary.

But even employees without significant additional income or deductions sometimes receive a tax bill. And that raises the same question every year: has too little tax been withheld?

Basically, the answer is no. And yet, it often feels that way.

You receive a salary, payroll taxes are withheld, the earned payroll tax reduction is applied, and a year later you still have to pay when you file your income tax return. In this article, we explain how this works. Primarily from the employee’s perspective, but also relevant for employers who are frequently asked this question.

Earned payroll tax reduction: the basics

The payroll tax reduction is a tax credit for working people. It is one of the two components of the payroll tax reduction. The other is the general tax reduction.

If you choose to apply the payroll tax reduction as an employee, the reduction is automatically included in the payroll tax withheld from your salary.

Up to a certain income level, the following applies: the higher your earned income, the higher the earned payroll tax reduction. In 2025, this applies up to an income of approximately € 27,000. After that, the trend reverses: the higher your income, the lower your credit. From that point on, the earned payroll tax reduction is actually phased out as your income continues to rise. Starting at an income of € 129,000, the earned payroll tax reduction is completely phased out, and you no longer receive any credit. This is because the Netherlands has a progressive tax system. The strongest shoulders bear the heaviest burdens.

The phasing out of the tax reduction is the heart of the problem: this tax credit is not definitively determined during the year based on your total annual income, but is provisionally applied to your paycheck.

Where things go wrong in practice

Payroll taxes on your salary are calculated on a periodic basis. Usually monthly, sometimes every four weeks or weekly. To do this, the Dutch Tax and Customs Administration uses a period table, such as the white monthly tax table. The earned payroll tax reduction is already factored into that table. So when you apply your payroll tax reduction, a lower effective tax amount is automatically taken into account. That works fine as long as your income is reasonably stable.

However, this pay period table does not take your total annual income into account. It only considers what you earn during that specific pay period. Consequently, the earned income tax credit for that period is also based on that amount.

Things get complicated as soon as there are higher one-time payments, such as:

• Bonuses
• Annual vacation pay
• 13th-month pay and profit-sharing bonuses
• Overtime
• Buyout of excess vacation hours
• Final settlement upon termination

In addition, there are other gross payments that cause a spike. Due to such spikes, your total annual income can end up being much higher than your regular monthly salary would suggest. The period table does not fully account for this in advance. As a result, too much earned income tax credit is sometimes applied during the year.

This adjustment is not made until later, through the income tax return. And that leads to an additional payment.

Why bonuses often cause this

Bonuses are a common cause, precisely because they cause your income to spike all at once. Even if the special rate is applied to a bonus, that is not the end of the story. That special rate is intended for withholding payroll tax on special payments, but it does not definitively determine how much earned payroll tax reduction you are entitled to for the entire year.

The final employment tax credit is not calculated until your total annual income is known. If you earn more than previously expected due to a bonus over the course of the year, it may turn out that you were ultimately entitled to a smaller employment tax credit than what was already processed through your pay stubs.

And that exact difference is reflected in your income tax return.

So, it is not that too little tax was withheld

That is where a lot of confusion arises. It feels like something went wrong along the way. As if your employer or payroll department withheld too little tax. But that is usually not the case.

Here is what happens:

• During the year, you receive a preliminary calculation via your paycheck;
• At the end of the year, the final calculation is made via your income tax return.

In tax terms, this involves “withholding preliminary tax” and “final tax.” So you have not necessarily underpaid your taxes. In many cases, you have simply received a temporary over-rebate. And that is adjusted retroactively.

This is exactly why it makes sense on paper, but still feels illogical or unfair in practice.

How to minimize surprises?

You cannot always prevent surprises entirely. But you can prepare for them:

1. Expect to make an additional payment if you are anticipating a bonus

Are you receiving a bonus or another one-time payment? If so, it is wise not to automatically assume that payroll taxes will cover the entire amount.

2. Consider temporarily suspending your payroll tax reduction

Want more certainty? Then you might want to consider temporarily suspending your payroll tax reduction. Another option is to request additional payroll tax withholding. You can ask your employer or HR department to do this at any time during the year.

3. Set aside a portion of your bonus

It sounds simple, but it is often the most practical solution. This way, you ensure that a tax bill a year later will be less of a financial burden. At the bottom of your pay slip, under “cum. arbeidskorting” or “cum. labour discount” (depending on the settings of your pay slip). you can see each month how much earned income tax credit has been applied to your salary for the entire calendar year.

4. Review your tax return early

Do not wait until the last minute if you know your situation differs from the norm. Consider bonuses, multiple sources of income, or other tax-related specifics.

The bottom line in a nutshell

Do you have to pay additional taxes when filing your income tax return even though you are a regular employee? That does not necessarily mean that too little tax was withheld. Often, it simply means that the earned payroll tax reduction was applied too generously during the year and is being recalculated retroactively based on your total income.

How we can help

We have noticed that this situation raises questions for employees and employers every year. And understandably so. The system is technically sound, but to many people it does not make sense.

Are you unsure about your situation? Or do you want to better assess in advance whether a bonus will result in an additional payment when filing your income tax return? Our payroll consultants and tax specialists are happy to help you figure it out. That way, you will not discover the impact only when filing your return. You will have a better grasp of what is coming. Contact us, and we’ll look into it together.