Averaging of retirement incomes
In the past, a scheme was created for farmers with an unstable income due to the changeable weather conditions in the Netherlands! Averaging lifts the progressive burden of paying income tax when there is a significant difference in income over a period of three years, the the averaging period.
This scheme also applies for pensioners of international organisations who previously enjoyed an exempt income. For income tax purposes, their salary is set at zero during active employment as a result of this exemption. Their pension income, however, is subject to tax. An example:
Mr M received an exempt salary from an international organisation. He retired on 1 January 2015. He receives a pension of €130,800, which, due to the progressive tax burden, is taxed in the highest bracket at a rate of 52%. The total amount due in income tax is €51,294.
By averaging, this income is spread across three years, whereby part of the income is taxed at 8.35%, part in the second bracket at 13.85% and part in the third bracket at 42%. This amounts to a sum to be paid of € 21.489, followed by a rebate of €29.260!
The attached table clearly shows the positive results gained by averaging.
Averaging of incomes on retirement
|Date of assessment||2016|
|Taxes paid||0||0||51.294||51.294||Taxes to be paid||-21.489|