Labour Tax Credit (Arbeidskorting)

Key Takeaways

The labour tax credit (arbeidskorting) is a tax credit exclusively for people who earn income from work — employment or self-employment.
In 2026, the maximum credit is €5,685 per year.
The credit phases in as income rises from €0 to €45,592, then phases out for incomes above that level.
At very high incomes (above €132,920), the credit reaches €0.
Unlike the general tax credit, the labour tax credit is not transferable to a tax partner.

What Is the Labour Tax Credit?

The arbeidskorting is a tax credit designed to make working more financially rewarding compared to receiving benefits. It is available to anyone who earns income from labour — whether as an employee, freelancer, or business owner.

The Dutch government uses this credit to keep a gap between what people earn from working and what they would receive from social benefits. This is called the "incentive to work" (arbeidsprikkel).

arbeidskorting

Who Qualifies?

You qualify for the labour tax credit if you have income from:

Employment (loon uit dienstbetrekking) — salary from an employer
Self-employment (winst uit onderneming) — profit from your business as a ZZP'er or sole trader
Other work activities (resultaat uit overige werkzaamheden) — freelance income not qualifying as business income

You do not qualify if your only income comes from:

Pensions or retirement benefits
Social security benefits (WW, WIA, bijstand)
Investment returns (Box 2 or Box 3 income)

Good to know

If you receive both a salary and a pension, only the salary portion counts toward the labour tax credit. The Belastingdienst calculates the credit based on your total employment income when you file your tax return.

How Much Is It Worth? (2026 Rates)

The labour tax credit uses a complex formula with multiple income brackets. Here is a simplified overview:

Income Range	Credit Calculation
€0 – €11,965	8.324% of income
€11,965 – €25,845	€996 + 31.009% of income above €11,965
€25,845 – €45,592	€5,300 + 1.950% of income above €25,845
€45,592 – €132,920	€5,685 (maximum) minus 6.510% of income above €45,592
Above €132,920	€0

Worked Examples

Annual Employment Income	Labour Tax Credit
€10,000	€832
€20,000	€3,488
€30,000	€5,381
€40,000	€5,577
€46,000	€5,685 (maximum)
€55,000	€5,073
€75,000	€3,773
€95,000	€2,473
€115,000	€1,173
€133,000	€0

Tip

The labour tax credit is worth the most to people earning between €40,000 and €50,000 per year. At that income level, the combined value of the general tax credit and labour tax credit can exceed €8,000 per year — equivalent to roughly €670 per month in reduced tax withholding.

How the Credit Affects Your Payslip

If you are employed, the labour tax credit is applied automatically through your monthly payroll, together with the general tax credit. The two credits combined form the loonheffingskorting.

Here is how it works in practice:

Your employer calculates the loonheffing (payroll tax) on your taxable wage
The employer subtracts the monthly loonheffingskorting (general tax credit + labour tax credit)
The remaining amount is the actual tax withheld from your salary

Monthly Impact

For an employee earning €40,000 per year (where the credit is near maximum):

Annual labour tax credit: ~€5,577
Monthly benefit: ~€465 per month
Combined with general tax credit (~€2,458): ~€670 per month in total credits

Without these credits, your monthly tax withholding would be €670 higher.

Phase-In and Phase-Out Explained

The labour tax credit has a unique shape — it both phases in and phases out:

Phase-In (€0 – €45,592)

As your income rises from zero, the credit increases. This is the "incentive to work" in action — each additional euro of income not only adds to your earnings but also increases your tax credit. The effective marginal tax rate is actually negative in this range (you gain more than just the extra income).

Phase-Out (€45,592 – €132,920)

Above roughly €45,600, the credit starts decreasing. For every additional euro earned, you lose about 6.5 cents of the credit. This adds to your effective marginal tax rate.

Warning

The phase-out of the labour tax credit means that someone earning between €45,592 and €78,426 faces a combined marginal rate of approximately 50.5% in some income ranges. This is because the regular tax rate (37.56% in the second bracket), the phase-out of the general tax credit (6.398%), and the phase-out of the labour tax credit (6.510%) all stack on top of each other. Understanding this is crucial for salary negotiations and financial planning.

Labour Tax Credit for Self-Employed

If you are self-employed (ZZP'er), the labour tax credit works the same way, but it is not applied through payroll. Instead, you claim it when you file your annual tax return.

The credit is calculated on your profit from business (winst uit onderneming) rather than employment income. You may also be eligible for additional self-employment credits:

Zelfstandigenaftrek (self-employed deduction)
MKB-winstvrijstelling (SME profit exemption)
Startersaftrek (starter's deduction)

These are separate from the labour tax credit and can be combined with it.

Labour Tax Credit vs General Tax Credit

Feature	General Tax Credit	Labour Tax Credit
Who qualifies	All taxpayers	Only those with work income
Maximum (2026)	€3,115	€5,685
Phase-out start	€29,736	€45,592
Fully phased out at	€78,426	€132,920
Transferable to partner	Partially	No
Applied via payroll	Yes	Yes

Common Mistakes

Confusing the labour tax credit with the general tax credit — They are separate credits with different amounts and phase-out schedules. Both are applied automatically.
Expecting the credit on pension income — Retirees receive the general tax credit but not the labour tax credit. This is one reason net pension income is lower relative to the gross amount than many people expect.
Not realizing the phase-out affects marginal rates — High earners often do not realize the labour tax credit phase-out adds 6.510% to their effective marginal rate.
Forgetting to claim it as a self-employed person — If you are a ZZP'er and do not file a tax return, you miss out on this credit entirely.