The Labour Tax Credit in the Netherlands

What is the labour tax credit (arbeidskorting)?

The labour tax credit lowers the income tax on what you earn from work. Most people who live and work in the Netherlands get it automatically.

It is one of the Dutch tax credits (heffingskortingen), the discounts the Belastingdienst subtracts from your income tax. The general tax credit (algemene heffingskorting) works differently and does not depend on work income. The labour tax credit lowers your tax bill. It gets paid out through your monthly payroll.

It applies only to income from work.

Take Daniel, who moved to Amsterdam last year and earns €40,000 in his first full year here. We follow his labour tax credit through this guide.

Daniel's salary is the obvious part, but the credit looks at more than that.

Which income counts toward your labour tax credit?

The labour tax credit looks at your work income (arbeidsinkomen), not your total income. Work income is what you earn by working. It includes your wages, sickness benefit and other pay your employer withholds payroll tax on. It also covers profit from a business, before the entrepreneur allowance and the SME profit exemption. Tips, share options and pay without payroll tax count as well. So does exempt pay from an international organisation. Income from other work, such as freelancing, counts too.

Foreign employment income is the part internationals often miss. It counts as work income, whether it comes from a job or a business abroad. So imagine you work for a Dutch employer and also earn a salary across the border. That foreign salary raises your labour tax credit too.

Savings, investments, a pension and alimony are not work income, so they never raise your labour tax credit. Where you live also matters. Living abroad and working here needs qualifying non-resident taxpayer status. Without that status, only part of your income may count toward the credit. This status depends on your income, residence and employer location. The Belastingdienst decides it each year.

So how much does that add up to?

How much is the labour tax credit in 2026?

In 2026 the labour tax credit is at most €5,685 below state pension age. The exact amount depends on how much you earn from work. It builds up quickly on lower incomes, reaches its peak, then tapers off.

The table below shows the four income brackets for anyone who has not yet reached state pension age (AOW).

The table explains Daniel's number in practice.

How is the labour tax credit applied?

You do not claim the labour tax credit yourself. The Belastingdienst applies it automatically. If you work as an employee, your employer already builds it into your monthly payroll (loonheffing). You then pay less tax on each payslip. In your annual return, the Belastingdienst works it out again and corrects any difference.

Daniel earns €40,000, which falls in the third bracket. His credit is €5,300 plus 1.950% of the €14,155 above €25,845, about €5,576.

Say Daniel gets a raise to €55,000. Now he is in the phase-out bracket. His credit becomes €5,685 minus 6.510% of the €9,408 above €45,592, about €5,073. He earns €15,000 more, yet his labour tax credit drops by roughly €503.

This is why your credit can change when your income does. It also shifts when you switch jobs mid-year, work for two employers at once, or arrive part-way through the year. In an arrival or departure year, the credit follows the work income you earned. With two employers, each applies the credit on its own, so together they can apply too much. The Belastingdienst settles the correct total in your return. If your income changes mid-year, a provisional assessment (voorlopige aanslag) adjusts your monthly tax straight away.

Sometimes your employer works out a higher credit than the table gives. If your work income is not above €45,592, the Belastingdienst adopts that figure, up to €5,685. This rule holds only below that income point. Above it the table amount applies.

Age changes the numbers.

What if you have reached state pension age (AOW)?

Your labour tax credit is lower once you reach the AOW state pension age. In 2026 it is at most €2,840. You pay less national insurance once you reach AOW age, so the credit that offsets it is smaller too.

If you reach AOW age partway through 2026, a separate calculation applies for that year. The table below shows the 2026 brackets for someone who is over AOW age for the whole year. Rounding can shift the credit on your assessment by a euro or so. The amount on your assessment is the correct one.

That leaves what you should review yourself.

What this means for you

In most years you do nothing, because payroll and the Belastingdienst handle the labour tax credit for you. It is worth a look in three cases: you changed jobs during the year, you had two employers at once, or you arrived in or left the Netherlands mid-year. In those cases, compare the credit on your final payslip and your draft return against the table above. Rather have us do that? We review your labour tax credit as part of our tax return service.

The labour tax credit is one of several Dutch tax credits. Your credit applies on top of the income tax brackets and rates, which set the tax before any credit applies. If you care for young children on a modest income, look at the income-related combination tax credit as well. Daniel earns €40,000 all year, so his credit should come to about €5,576.