For U.S. citizens living in the Netherlands, navigating taxes can be a challenge due to obligations in both countries. Here, we will explore key aspects of taxes in The Netherlands and the tax responsibilities U.S. citizens must meet.
- U.S. Tax filing requirements for Expats in The Netherlands
- The U.S.-Netherlands Tax Treaty
- When to file you U.S. Taxes
- Taxes in The Netherlands for U.S. Citizens
- When to file your Dutch taxes
U.S. Tax Filing Requirements for Expats in The Netherlands
The United States taxes its citizens on worldwide income. What does this mean for you? U.S. citizens living in the Netherlands must still file a tax return for America. This includes reporting all sources of income, even if you earn it abroad.
Imagine you get money in different ways, like:
- Earned income: This is money you get from working, like wages from a job.
- Unearned income: This is money you get without working, like money from your investments, rentals or gifts.
- Self-employment income: This is money you make by doing things on your own, without an employer.
Here’s the general rules of when you need to file taxes:
- If you’re under 65 years old:
- Earned income: If you make $13,850 or more, you need to file taxes.
- Unearned income: If you make $1,250 or more, you need to file taxes.
- Self-employment income: If you make $400 or more, you need to file taxes.
So, if you make money that’s over these amounts, you have to tell the government about it by filing your taxes. If you make less than these amounts, you don’t have to file, but you can still choose to if you want.
There are exceptions to the rules listed above. For instance, if you are Married Filing Separately and you earn over $5 in any way, you need to file. Please review the following chart from the IRS for filing requirements for different filing statuses.
Additionally, if the combined value of your foreign accounts exceeds $10,000 at any point during the year, you must file an FBAR (Foreign Bank Account Report). The FATCA (Foreign Account Tax Compliance Act) also requires that you disclose specific foreign assets above certain thresholds.
FBAR and FATCA Requirements
The FBAR is a required report for US citizens who have over $10,000 in foreign bank accounts at any point in the year. This includes any account you control, even if you don’t own it, such as business or HOA accounts. Filed as form FINCEN114, the FBAR is due by April 15 each year, in line with US tax deadlines. Importantly, the FBAR doesn’t generate a tax bill; it’s purely informational, ensuring the US Treasury knows about foreign assets for compliance and transparency purposes.
This law requires U.S. citizens, including those living abroad, to report their foreign financial accounts and assets if they exceed certain thresholds. This includes but is not limited to:
- Foreign corporations
- Partnerships
- Trusts
- Foreign stocks
- Mutual funds held directly or in a foreign financial account
- Foreign real estate held by a foreign entity.
Foreign financial institutions are obligated to report account information held by U.S. citizens to the IRS.
Penalties for failure to file or late filing of foreign assets are $10,000 or more. These types of assets can get complicated quickly. Consider consulting a tax professional. BNC Tax & Accounting B.V. specializes in tax preparation for American expats.
Avoiding Double Taxation: The U.S.-Netherlands Tax Treaty
The U.S. and The Netherlands have a tax treaty to help prevent double taxation for U.S. citizens living abroad. Through this treaty, you may qualify for the Foreign Earned Income Exclusion (FEIE), which allows you to exclude a set amount of foreign income from U.S. taxes.
To qualify for the FEIE, you must meet either the Bona Fide Residence or Physical Presence test.
- Bona Fide Residence Test: To qualify, you must be a resident of the Netherlands for an entire calendar year (January-December) with no immediate plans to return to the US. It is best to use the Bona Fide Residence Test after several years of using the Physical Presence test.
- Physical Presence Test: This test requires that you spend at least 330 days outside the US within any 12-month period. If you do not meet this test, the amount you can exclude can be prorated.
Additionally, the Foreign Tax Credit (FTC) lets you claim a credit on your U.S. taxes for income taxes paid in the Netherlands, reducing or eliminating the risk of being taxed twice on the same income. This is not a one-to-one translation, though. Some tax you pay, such as premie volksverzekeringen, do not count as taxes paid in the US and must be excluded.
Expat parents may also be eligible for the Child Tax Credit (CTC). This credit provides up to $1,600 per qualifying child, offering partial refunds to help lower overall US tax liability.
When to file your U.S. taxes? Important Dates to Know.
- April 15 – the date that individual taxes are due. All tax payments are due by this date, even if you have extensions to file. Extensions to file are not extensions to pay. If you owe, you will accrue interest and penalties on your unpaid taxes after this point.
- June 15 – the deadline for expat tax returns. The IRS extends the filing (not payment!) deadline for expats by two months.
- October 15 – As an expat, you can also apply for additional extensions through October 15.
- December 15 – In special cases, you can request one final extension. To get this extension, you must physically mail a letter to the IRS before the October 15th deadline.
Taxes in The Netherlands for U.S. Citizens
Do U.S. Citizens pay taxes in The Netherlands? Yes, U.S. citizens living in the Netherlands must pay Dutch taxes if they meet the residency criteria. Dutch tax residency is determined by factors like having a permanent home or spending more than 183 days a year in the Netherlands. As residents, they are subject to Dutch income tax on worldwide income, divided into three categories or “boxes,” covering income from employment, investments, and savings.
If you’re a U.S. expat recruited from abroad, you may qualify for the 30% tax ruling. This ruling allows employers to up to 30% of your gross salary tax-free in the Netherlands. This can significantly reduce taxable income in the Netherlands. There are proposed changes to the 30% tax ruling. Make sure to speak with a tax expert to know more about this ruling.
When to File Your Dutch Taxes?
The Dutch tax year runs from January 1 to December 31. As an expat, if you’re required to pay Dutch income taxes, your tax return is due by April 1. Any taxes owed will need to be paid within two months after receiving the final assessment of your return. Note: due to demand, your Dutch return may be extended and not completed until late in the year. Many U.S. expat taxpayers may not end up filing their U.S. return until October!
Left to right: Kristina Thomas, Luana Botelho, Christie Hoendervangers-DuChateau, Katerina Alexiou
Navigate Your Personal Tax Situation with BNC Tax
BNC Tax is a tax preparation and planning firm for U.S. citizens living abroad. We specialize in expat tax preparation and expat tax issues, including how foreign income, businesses, or rental properties affect your U.S. tax liability. BNC can also guide you on how to use tax benefits such as the Foreign Earned Income Exclusion and Foreign Tax Credits to your advantage.20mk