As an employer, you withhold tax on the wages you pay to your employee. We call this payroll tax. This payroll tax consists of wage tax and premiums social security. Part of the salary goes automatically to the tax authorities so that the employee is not faced with surprises at the end of the year and has to pay back. Also on the money that is earned in addition to the regular wage, like for example holiday allowance, overtime or a bonus, payroll tax is deducted. We call this “payroll tax special rate”.
What is the basis for the calculation of payroll tax special rate?
Payroll tax special rate is applied to all income in addition to the regular salary. This can be:
- one-off payments or payments that are only granted once a year (examples are RSU’s, bonuses and holiday allowance allowance).
- overtime pay.
- one-off payment for unused vacation days.
- remuneration over a different period, such as commissions paid in arrears or retrospective wage increases.
- back payments relating to periods in a previous calendar year.
Annual salary as a starting point for the table for special remunerations
The amount of the salary is based on the annual income. There are three possible situations when it comes to the annual income:
- You paid the employee wages for the entire preceding calendar year. You then use the wages the employee received from you in that year.
- The employee joined the company during the previous year. You then use the amount converted to an annual salary.
- The employee joined the company in the current year. You then convert the amount earned in the current year to an annual wage as if your employee would receive wages for the entire year.
How high is the payroll tax special rate?
A separate table is used for the special rate. This is different from the normal payroll tax rates because these rewards are in addition to the normal monthly wage. This means that the special remuneration falls into the bracket with the highest rate, also called the ‘marginal rate’.
The tax rate is determined by age and income. We then determine whether or not the employee applies a payroll tax credit. Payroll tax credits are applied to most employees, except if they have multiple jobs. The payroll tax credit may only be applied by one employer. If the pension age has not yet been reached and no tax credit is applied, an employee with an annual salary up to € 69,399 will pay 37.07% tax on the additional income. With an income higher than € 69,399, a tax rate of 49.50% applies.
If payroll tax credits are applied, the percentages are very different. Not only the special rate, but also the offset percentage depends on the amount of annual salary. A percentage is added or subtracted to the standard rate of 37.07% or 49.50%.
- Up to an income of 8,878 euro the special rate is 0%.
- With an income between 8,879 and 11,178 euros, the special rate is 37.07 – 4.54 = 32.53 %
- With an income between 11,179 and 20,700 Euro the special rate is 37.07 – 28.46 = 8.61%.
- For an income between 20,701 and 21,317 Euro the special rate is 37.07 – 2.61 = 34.64%.
- For an income between €21,318 and €36,649 the special rate is 37.07 + 3.40 = 40.47%.
- With an income of between 36,650 and 69,398 euros the special rate is 37.07 + 11.87 = 48.94
- If your income is between 69,399 euros and 118,094 euros, the special rate is 49.50 + 5.86 = 55.36 %.
- With an income of 118,095 euros or higher the rate is 49.50%.
So there are many different rates for non-recurring remuneration. It is important to apply the correct rate so that sufficient payroll tax is withheld and paid at the end of the year. The special rate is in principle determined once a year on the basis of the annual income of the previous year. However, it is possible to adjust the special rate during the year.
The higher rate may be difficult to explain to the employee. On the other hand, unexpected fluctuations in income or failure to apply the correct rate may result in too little payroll tax being withheld. Should a difference occur, it can be corrected in the income tax return.