Taxation of US pension in the Netherlands - The TaxSavers (2024)

FAQs

Taxation of US pension in the Netherlands - The TaxSavers? ›

In the Netherlands, you have to state your worldwide income, including the pension. However, according to the tax treaty between the Netherlands and United States, an American state pension is taxed in the United States. That is why, in this case, you will always have a tax liability with the IRS (US tax authorities).

US State pension

As said, as a resident of The Netherlands, you'll still have to include this pension income in your Dutch personal income tax return in Box 1. Under the treaty you can claim a full exemption in The Netherlands for these US pension payments, so there will be no double taxation.

The United States is one of the few countries that taxes its citizens on their worldwide income. This means that Americans who retire overseas still have tax obligations. If you're retiring abroad, there's a good chance you'll be subject to taxation by the United States and your new home country.

The US Netherlands tax treaty, originally signed in 1993, serves as an agreement between the two countries for determining the taxation of income where both nations may have the legal right to tax according to their respective laws.

The US has a citizen-based taxation system, obligating all US citizens to file tax returns regardless of their country of residence or workplace. This means that you must file a local tax return in the Netherlands and a tax return in the US. Each country has unique forms and regulations.

The taxable part of your pension or annuity payments is generally subject to federal income tax withholding. You may be able to choose not to have income tax withheld from your pension or annuity payments or may want to specify how much tax is withheld.

You can move the whole pension to your retirement country and either take a lump sum payment or invest it in a new pension scheme within that country. If you have more than one source of retirement income, you may wish to transfer one as a lump sum while leaving the other as monthly payments.

Windfall Elimination Provision and Foreign Pensions

Your foreign pension will not cause WEP to apply to your U.S. Social Security benefit.

What is the expat tax rule in the Netherlands? ›

The Netherlands' 30% ruling is a tax benefit that enables Dutch employers to give highly skilled migrant employees 30% of their salary tax-free for up to five years. The Dutch government recently amended the ruling.

The Netherlands, like other European countries, is part of the Schengen Agreement, which means that American retirees are allowed visa-free entry into the Dutch country as tourists or for business purposes up to 90 days. If you plan on a longer residency, you will have to apply for a permit.

The Dutch state pension is funded by worker contributions, at a rate of 17.9% of salary. Single pensioners entitled to the full state pension can receive a gross total of €1,270.67 in 2020 (70% of the net minimum wage), while married or cohabiting couples can receive €870.03 for (50% of net minimum wage).

U.S.-Netherlands Tax Treaty and the Foreign Tax Credit

Pensions usually are taxable only in the country of residence. In other words, if you worked in the Netherlands, now live in the United States and receive a Dutch pension, you should not be subject to Dutch income taxation. However, there are some exceptions.

In 1989, India decided to enter into a double taxation agreement with the Netherlands to help taxpayers avoid paying income taxes in both the Netherlands and India. This DTAA applies to different types of taxes, such as dividends and income taxes.

The Dutch tax lower incomes far less steeply than in the USA. For example, at a household income of $40,000 the U.S. effective tax rate is 9.18%, while the Dutch rate is a mere . 05%. The crossover point between Dutch and USA taxes occurs at a household income of about $84,000.

The Netherlands, like other European countries, is part of the Schengen Agreement, which means that American retirees are allowed visa-free entry into the Dutch country as tourists or for business purposes up to 90 days. If you plan on a longer residency, you will have to apply for a permit.

The moment money is taken out by you from the 401K or IRA while you are a Dutch tax resident, the amount is taxed in Box 1. We can only assume you have already a taxable income in Box 1. If that income exceeds roughly EUR 75.000, the amount taken out is taxed at 49,5% income tax.