How Tax Credits Phase In and Out

Key Takeaways

Dutch tax credits are not fixed amounts — they change based on your income level.
The general tax credit phases out (decreases) as income rises above €29,736.
The labour tax credit phases in (increases) up to €45,592, then phases out above that level.
These phase-outs create hidden marginal tax rates that add 6–13% on top of the official bracket rates.
Understanding these mechanics is essential for salary negotiations, retirement planning, and financial decisions.

Why Credits Phase In and Out

The Dutch tax system uses income-dependent tax credits to achieve two policy goals:

Make work pay — The labour tax credit phases in at low incomes, ensuring that workers always earn more than people on benefits.
Progressive taxation — Both credits phase out at higher incomes, effectively increasing the tax burden on high earners without raising the official bracket rates.

The result is a system where your effective marginal tax rate can be quite different from the official bracket rate — sometimes significantly higher.

The General Tax Credit Phase-Out

The general tax credit (algemene heffingskorting) starts at its maximum and decreases as income rises:

Income	General Tax Credit	Change
€0 – €29,736	€3,115	Full credit
€35,000	€2,778	−€337
€45,000	€1,138	−€1,977
€55,000	€498	−€2,617
€65,000	€858	−€2,257
€75,000	€218	−€2,897
€78,426+	€0	Fully phased out

The phase-out rate is 6.398% — meaning for every €1,000 of income above €29,736, you lose €63.98 of the credit.

The Labour Tax Credit Phase-In and Phase-Out

The labour tax credit has a more complex shape. It first increases with income, reaches a peak, then decreases:

Phase-In: €0 – €45,592

Income	Labour Tax Credit	Effect
€0	€0	No income, no credit
€10,000	€832	Building up
€20,000	€3,488	Growing fast
€30,000	€5,381	Approaching peak
€45,592	€5,685	Maximum reached

During the phase-in, the credit acts as a bonus on top of your income. Your effective tax rate is lower than the bracket rate because every extra euro of income also increases your tax credit.

Phase-Out: €45,592 – €132,920

Income	Labour Tax Credit	Loss vs Maximum
€50,000	€5,398	−€287
€60,000	€4,747	−€938
€70,000	€4,096	−€1,589
€90,000	€2,794	−€2,891
€110,000	€1,493	−€4,192
€130,000	€191	−€5,494
€132,920+	€0	Fully phased out

During the phase-out, the credit loss adds 6.510% to your effective marginal tax rate.

The Combined Effect: True Marginal Tax Rates

Here is where it gets interesting. The official Dutch tax brackets for 2026 are:

Bracket 1: 35.75% (up to €38,884)
Bracket 2: 37.56% (€38,884 – €78,426)
Bracket 3: 49.50% (above €78,426)

But the actual marginal tax rate — what you effectively pay on each additional euro — includes the credit phase-outs:

Income Range	Bracket Rate	General Credit Phase-Out	Labour Credit Phase-Out	True Marginal Rate
€0 – €11,965	35.75%	0%	−8.324%*	~27.4%
€11,965 – €25,845	35.75%	0%	−31.009%*	~4.7%
€25,845 – €29,736	35.75%	0%	−1.950%*	~33.8%
€29,736 – €38,884	35.75%	+6.398%	−1.950%*	~40.2%
€38,884 – €45,592	37.56%	+6.398%	−1.950%*	~42.0%
€45,592 – €78,426	37.56%	+6.398%	+6.510%	~50.5%
€78,426 – €132,920	49.50%	0%	+6.510%	~56.0%
Above €132,920	49.50%	0%	0%	49.50%

Negative values in the labour credit column indicate the credit is still increasing (phase-in), which reduces the effective rate.

Warning

The income range €45,592 – €78,426 has a true marginal rate of approximately 50.5%, even though the official bracket rate is only 37.56%. And the range €78,426 – €132,920 reaches about 56%. These are among the highest effective marginal rates in the Dutch system, even higher than the top bracket rate of 49.50%.

What This Means for You

Salary Negotiations

When negotiating a raise from €50,000 to €60,000, you might expect to keep about 62% (100% − 37.56%) of the extra €10,000 = €6,244 net.

In reality, due to the credit phase-outs, you keep only about 50% = €4,953 net. The other half goes to tax and reduced credits.

Worked Example: The Real Cost of a €10,000 Raise

Starting salary: €50,000 → New salary: €60,000

Component	Amount
Extra gross income	€10,000
Income tax (bracket 2: 37.56%)	−€3,756
Lost general tax credit (6.398%)	−€640
Lost labour tax credit (6.510%)	−€651
Actual net gain	€4,953
Effective tax rate on the raise	50.5%

Tip

This does not mean a raise is not worth taking — you still receive an additional ~€5,000 net per year. But it is important to set realistic expectations and understand why the net increase is smaller than you might expect based on the official tax bracket alone.

Retirement Planning

Retirees do not receive the labour tax credit. When you retire:

You lose the labour tax credit (up to €5,685 per year)
The general tax credit is typically lower because pension income is lower than employment income
National insurance premiums for AOW no longer apply (you are already receiving AOW)

The net effect depends on your specific situation, but most people see a significant drop in net income beyond just the lower gross pension.

Part-Time Work Considerations

If you are considering reducing your hours (and income), the phase-in of the labour tax credit can soften the blow. Going from €60,000 to €40,000 means you regain labour tax credit, partially offsetting the income loss.

Scenario	Gross Income	Combined Credits	Net Benefit of Credits
Full-time (€60,000)	€60,000	€1,178 + €4,747 = €5,925	—
Part-time (€40,000)	€40,000	€2,458 + €5,577 = €8,035	+€2,110 in credits

The €20,000 gross income reduction results in roughly a €12,000 net reduction (not €20,000) because of the higher credits and lower marginal rate on the remaining income.

How the Belastingdienst Handles This

During the Year (Payroll)

Your employer uses wage tax tables (loonbelastingtabellen) that incorporate both the bracket rates and the credit phase-outs. You do not need to calculate any of this yourself — it happens automatically.

At Year-End (Tax Return)

When you file your tax return, the Belastingdienst recalculates your credits based on your actual annual income. If your employer withheld too much or too little (because of income changes, bonuses, or multiple income sources), the difference is settled.

Interaction With the 30% Ruling

If you have the 30% ruling, 30% of your gross salary is tax-free. This means your taxable income is lower, which affects the credit calculations:

Lower taxable income → higher general tax credit (less phase-out)
Lower taxable income → potentially lower labour tax credit (if income falls below the peak)

In most cases, the 30% ruling holders receive more of both credits than they would without the ruling, because their taxable income sits in a more favorable range.

Common Mistakes

Using the bracket rate to estimate net salary — The official bracket rates (35.75%, 37.56%, or 49.50%) significantly understate the true marginal rate for incomes between €45,592 and €132,920.
Not accounting for credit phase-outs in salary negotiations — A raise that crosses certain thresholds may yield less net benefit than expected.
Comparing Dutch tax rates with other countries using only bracket rates — The phase-outs make the effective Dutch tax burden higher than the bracket rates suggest, especially in the €45,000–€133,000 range.
Overlooking the labour tax credit phase-in benefit at low incomes — Part-time workers and people re-entering the workforce benefit from the phase-in, which effectively lowers their marginal rate.