Wage tax in the Netherlands
The Dutch wage tax is an advance tax payment for the Dutch income tax.
The Dutch withholding system is basically a 'pay as you earn' system through which it can be avoided that tax payers have to pay a single large payment for income tax and social security contributions once a year. It also provides the Dutch tax office more certainty that the income tax due by employees (and employers) will be paid and reported.
The wage tax is, in technical terms, a pre-levy on the Dutch income tax due by the employee. It is calculated on the basis of withholding tables, taking into account the age of the tax payer, the progression of the Dutch income tax rates and the standard tax deductions and allowances. For a-periodical salary components such as a bonus or severance payment a special withholding table may be applied.
In a standard situation where the employee's only income is the income from employment to which the withholding is applied, and where the employee is not entitled to any special tax deductions or allowances, the wage tax withheld will in most cases be equal to, or at least in close proximity of, the Dutch income tax due by the employee. This is the reason why many Dutch tax payers effectively do not receive an invitation to file an annual income tax return; the already withheld and paid wage tax is considered to be the final settlement of the employee's income tax obligation as it is.