What is the compensation scheme for working in Germany?
The compensation scheme repays the tax gap your German wage creates. When you live in the Netherlands and work in Germany, Germany taxes your wage. Your Dutch deductions, like mortgage interest, no longer lower that German tax. The scheme repays that difference.¹
It is for employees who live here and pay German wage tax. Entrepreneurs and pensioners fall outside it. They use a different route, the doorschuifregeling (the carry-forward scheme), which we explain further down this page.
Take Karim. He lives in the Netherlands and commutes to a job in Germany. His German employer withholds German wage tax, and his Dutch mortgage interest no longer reduces it. We follow his case through this page.
In short
A refund of extra tax you pay because Germany, not the Netherlands, taxes your wage.
Employees only. Entrepreneurs and pensioners use the doorschuifregeling instead.
The difference between two sums decides it: your German tax against the Dutch tax on the same wage.
You claim it in your Dutch tax return. The compensation appears on your final assessment.
Germany is generally entitled to tax work done there. The Netherlands-Germany treaty has applied since 2016.
From 2026 you keep up to 34 home-working days taxed in the employer country.
Your German wage is converted to a Dutch wage before the Belastingdienst compares the two.
Why is German tax often higher for you?
German payroll tax feels higher because your Dutch deductions no longer lower it. In the Netherlands you can deduct your mortgage interest and other personal deductions. Against a German wage, those deductions fall away.
So two people on the same wage can pay very different tax. The one taxed in Germany misses the reliefs that the one taxed here still uses. That gap is exactly what the compensation scheme is built to close.
For Karim this is the whole point. His German tax is higher than a Dutch neighbour on the same salary pays. His mortgage interest counts for nothing against it. Deductions are the usual cause, but the scheme refunds the whole gap.
Where do you pay tax when you work in Germany?
You usually pay tax in Germany, the country where you do the work. That is the main rule in the Netherlands-Germany tax treaty. The treaty took effect in 2016 and has applied on its own since 2017.²
There are exceptions. The best known is the 183-day rule. Do you work in Germany for fewer than 183 days in any 12-month window? Then the Netherlands can still tax that wage. That requires a non-German employer with no branch bearing it.
Government pay, teaching and some other cases follow their own rules. When Germany taxes the work, the compensation scheme evens out the result. Not sure whether you count as a Dutch resident? Start with our guide on tax residency in the Netherlands.
How is the compensation calculated?
The compensation is the difference between your German tax and what the Netherlands would charge. The Belastingdienst compares two totals and refunds the gap when the German side is higher.¹
On one side sits what you actually pay. That is German wage tax and a surcharge on it, the Solidaritätszuschlag. Any Dutch tax and premiums you still owe come on top. On the other side sits what you would pay if the Netherlands taxed that wage: Dutch income tax and premiums volksverzekeringen. Premiums volksverzekeringen are the Dutch national insurance premiums. Your Dutch deductions count on that Dutch side, which is why the two totals differ.
German social contributions stay out of the comparison.
| Part of the comparison | What it covers |
|---|---|
| What you actually pay | German wage tax and Solidaritätszuschlag, plus any Dutch tax and premiums you still owe |
| What the Netherlands would charge | Dutch income tax and premiums on the same wage, after your Dutch deductions |
| Your compensation | The difference between the two, when the German side is higher |
| Not counted | German social contributions |
How do you claim the compensation?
You claim it in your Dutch income tax return. You do not send a separate request. The Belastingdienst works out the compensation and shows it on your final assessment, the definitieve aanslag.
One step comes first. The Belastingdienst first converts your German wage to a Dutch wage, using its own tool. Only then can it compare the two sides.
Karim files his Dutch return as usual and reports his German wage. The Belastingdienst converts it and compares his German tax with the Dutch tax on that wage. It then refunds the difference. The table below follows the steps. The exact amount depends on his figures. So we work it out with him, rather than print a number that would not fit your case. Do you also file a German return? Then share that assessment with us, so the comparison uses the right German figure.
| Step | What happens |
|---|---|
| 1. German payroll | German wage tax and Solidaritätszuschlag are withheld from your salary |
| 2. Convert the wage | The Belastingdienst converts your German wage to a Dutch wage |
| 3. Dutch tax on that wage | Your Dutch income tax and premiums are worked out, with your deductions |
| 4. Compare | The German side is set against the Dutch side |
| 5. Compensation | The difference is refunded on your final assessment |
“People assume the German tax on their payslip is simply what they owe. Often it is too high, because the deductions they use here count for nothing there. The compensation scheme gives that back, and we make sure the return claims it.”
Compensation scheme or doorschuifregeling?
Employees use the compensation scheme, and entrepreneurs and pensioners use the doorschuifregeling instead. The two solve the same problem in different ways.
The compensation scheme gives back the extra tax straight away, in the year you file. The doorschuifregeling instead carries your unused Dutch deductions forward. You use them in a later year, one with Dutch Box 1 income to set them against. So the relief arrives later, once the Netherlands taxes your income again.
A fiscal partner gives you a second lever. You can allocate deductions to the partner whom the Netherlands taxes, which can remove the disadvantage. That works at the partner's rate, so the effect depends on your situation. We check it with you before you file. Box 1 is the Dutch box for income from work and your own home.
What changes in 2026?
From 2026 you can work up to 34 days a year at home. Those days keep the tax treatment of your employer country. A bit of home working no longer shifts where you pay tax.
This comes from a change to the treaty, the wijzigingsprotocol. It took force on 31 December 2025 and applies from 1 January 2026.³ Before it, home-working days could move part of your wage into Dutch tax.
Keep the 34-day limit in mind if you split your week between a German office and a Dutch desk.
What does this mean for you?
You now know the scheme, the formula and the choice between two routes. The next step is your own situation.
Check where you are actually taxed, starting with our guide on tax residency in the Netherlands. Count your German days with the 183-day rule in mind. If you work partly from home, keep an eye on the 34-day limit from 2026. And decide whether the compensation scheme or the doorschuifregeling fits you.
We also check which route is best for you, at a fixed price. You can see how we handle a full return in our guide to the Dutch tax return. For Karim that means one Dutch return, with the compensation on his final assessment. Arrived or left partway through the year? Tell us the exact dates so we use the right figures.
¹ belastingdienst.nl, Living in the Netherlands with income from Germany · Accessed
Common questions about the Germany compensation scheme
Who can use the compensation scheme?
Employees who live in the Netherlands and pay German wage tax on their salary. Entrepreneurs and pensioners fall outside it and use the doorschuifregeling instead.
How do I claim the compensation?
You include it in your annual Dutch income tax return, not as a separate request. The Belastingdienst works it out and shows it on your final assessment.
Is the compensation scheme still current?
Yes. The scheme applies today for residents who pay German tax on their wages. It is based on the Netherlands-Germany treaty, in force since 2016 and applied on its own since 2017.
What is the difference with the doorschuifregeling?
The compensation scheme refunds your extra tax in the same year. The doorschuifregeling carries unused deductions forward to a later year with Dutch Box 1 income, so the relief arrives later.
How many days can I work from home from 2026?
Up to 34 days a year, and those days stay taxed in your employer country. A day counts once you work at least 30 minutes at home.
Do German social contributions count in the calculation?
They are not part of the compensation comparison. The comparison looks at tax and Dutch national insurance premiums, not German social contributions. We confirm your exact case before filing.
Can you file both my Dutch and German returns?
Yes. Cross-border returns are our core work. We file both sides, apply the compensation scheme where it applies and check whether the doorschuifregeling would serve you better.