Self-employed vs. employee in the Netherlands: How do you pay US expat taxes?

How do your taxes in the Netherlands vary depending on your employment status? Learn how to navigate your expat taxes as an employee and a self-employed worker. Bright!Tax explains.

With a thriving economy, a great job market, a welcoming culture, and generally a high standard of living, it doesn’t come as a surprise that the Netherlands attracts a lot of expats from around the world.

Currently, over 30.000 US expats are estimated to be living in this European country, predominantly in Amsterdam - some of them are working as employees, while others are self-employed. While both groups might achieve an excellent work-life balance, which the Netherlands boasts, the way they file and pay their US taxes differs.

In this article, we go over the process of filing your US expat taxes from the Netherlands for employees and self-employed individuals.

Income taxes in the Netherlands

Non-tax residents in the Netherlands only pay taxes on their Netherlands-sourced income, while tax residents pay income taxes on their worldwide income. As an expat, you will generally be considered a tax resident of the Netherlands in the following cases:

• If your family accompanies you to the country (if you are married); or
• If you stay in the Netherlands for more than a year (if you’re not married)

The Netherlands categorises income into three separate "boxes" for taxation, each with its own set of tax rates:

• Box 1: Employment and living: The most common box for expats - includes income from your job, a deduction for mortgage interest paid towards your primary residence, and other regular earnings.
• Box 2: Major holdings: This applies if you own a significant stake (typically over 5%) in a company. The income generated from this stake is taxed differently than your regular earnings.
• Box 3: Savings and investments: Income from interest, dividends, and capital gains on investments. The tax treatment for this type of income differs from your employment income.

The Netherlands operates a progressive income tax system, meaning your tax rate increases as your income rises. For Box 1, the rates are:

• €0 – €37.149 (~$0 – $41.008) = Tax rate of 9,28%
• €37.149 – €73.031 (~$41.008 – $80.622) = Tax rate of 36,93%
• €73.031+ (~$80.622+) = Tax rate of 49,50%

Tax requirements for self-employed individuals may depend on the business structure they choose. If you’re considered a resident, in 2024, you’ll be taxed at a rate of 19% for self-employment income up to and including €200.000 and 25,8% for any income above this.

US taxes for US expat employees and self-employed expats

No matter how long you’ve been living abroad or where you’re living, as long as you’re a US citizen, you’ll be subject to US taxes. Here’s how to navigate and optimise them while in the Netherlands.

US expat employees

If you’re an employee working for a company while living in the Netherlands, you share your tax obligations with the employer. You need to file a US federal tax return. The official deadline is April 15 each year, but as an expat, you get an automatic extension until June 15. Upon request, you might get another two extensions: until October 15 and December 15.

Self-employed US expats

If you’re self-employed and generating income while based in the Netherlands, the tax implications don’t differ much from those who are based in the US. 

Tax credits and exclusions

Before you start worrying about paying taxes on the same income twice (to two countries), we have good news: there are tax credits and exclusions that can significantly reduce your US tax burden.

The Foreign Earned Income Exclusion (FEIE)

The FEIE allows US citizens abroad to exclude a certain portion of their income from income taxes. For the 2023 tax year (the taxes you file in 2024), you can exclude up to $120.000. This limit increases to $126.500 for the 2024 tax year. To qualify for the FEIE, you must pass either the Physical Presence Test or the Bona Fide Residence Test. 

Foreign Tax Credit (FTC)

For both employed and self-employed taxpayers who pay tax in the Netherlands, the Foreign Tax Credit can be used to reduce their US tax bill based on income taxes paid in the Netherlands.

The Foreign Tax Credit provides US expats who pay taxes to foreign governments with dollar-for-dollar credits that they can apply toward their US tax bill. To qualify for the FTC, the taxes must be:

• Based on income
• Legal
• Issued specifically in your name; and
• Paid

You can claim the FTC by filing IRS Form 1116.

US-Netherlands Totalization Agreement

US citizens living in the Netherlands must pay social security taxes to either the Netherlands or the US, but not both, thanks to the Totalization Agreement. The country to which you pay social security taxes depends on the duration of your stay in the Netherlands:

• 0-5 years in the Netherlands: Social security taxes paid to the US government
• 5+ years in the Netherlands: Social security taxes paid to the Dutch government

Child Tax Credit (CTC)

US expats living in the Netherlands with qualifying children or dependents living with them can claim the Child Tax Credit just like in the US. This will usually give you up to $1.600 in partially refundable credits per qualifying child / dependent.

US-Netherlands tax treaty

The US-Netherlands tax treaty provides a framework to minimise double taxation on income earned by Americans living in the Netherlands. However, due to the Savings Clause, which lets both countries tax their citizens and treaty residents regardless, the benefits of the treaty may not always be available to US expats, except in specific cases. In that case, an expat may be better off claiming some of the tax credits, like the FTC or CTC.

The Bright!Tax team of experienced CPAs and tax professionals can help make your expat filing quick, smooth, and easy. Leave the tax season stress behind - learn more about Bright!Tax’s services and how they can help you today.