---

The Effective Tax Rate Calculator is a tool to compare taxation in the USA and the Netherlands. It answers the question: if you make the same amount of money in the USA and in the Netherlands, how much would your effective tax rate be in each country?

What does this article cover?

1. Using the calculator for folks who have questions about the various input fields.
2. For the morbidly curious, we look under the hood and discuss the internal workings of the calculator.

Using the Calculator

USA Information

Filing status

Choose between 'Married, Filing Jointly' and 'Single'. The IRS supports five filing statuses but this calculator only supports two of them. The filing status you choose determine which tax brackets, thresholds and limits we use to calculate your USA taxes.

State income tax rate

Enter an income tax rate. The number you enter will be interpreted as a percentage and will be applied as a flat tax rate to your income. The calculator does not support progressive tax rates for state income taxes.

Dutch Information

30% Ruling

Answer 'Yes' to model the effect of the 30% Ruling on Dutch taxes.

Note that

• The 30% ruling is only valid for 5 years, so it is a good idea to model your taxes both with and without the ruling.
• If you answer 'Yes', the calculator currently assumes that both partners receive the 30% ruling.

Children aged 12 and under

Answer 'Yes' if you have at least one dependent child aged 12 or younger. This field is used to determine if you might be eligible for the inkomensafhankelijke combinatiekorting tax credit.

Common Information

PartnerA income

A required field. Enter your gross (aka bruto) annual income in USD here. The calculator converts this to EUR to model the Dutch tax rate.

PartnerB income

If you choose 'Married, Filing Jointly' as your 'Filing Status', and your partner makes an income, enter your partner's gross (aka bruto) annual income in USD here.

Note that for Dutch taxation, you don't need to be married, you just need to be deemed fiscal partners. However, for the purposes of comparing taxation rates, this calculator equates 'Married, Filing Jointly' to having a fiscal partner.

Number of dependent children

Enter the number of dependent children you have. This is used to calculate the U.S. child tax credit and the Dutch kinderbijslag.

How does the Calculator work?

USA Taxes

This is the formula the calculator uses to compute your USA taxes

U.S. taxes owed = federal taxes + state taxes + social security tax + medicare tax - child tax credit

In the following sections we will describe how we calculate each component of this formula.

Federal taxes

1. We use the filing status that you chose to choose the appropriate federal income tax bracket. The calculator uses the rates for 2022.

2. We calculate taxable income as

Taxable income = partnerA income + optional partnerB income - standard deduction.

3. We use the tax brackets chosen in step 1 to compute the federal tax owed on the total taxable income.

State taxes

Forty one USA states tax earned income. Of these, nine have flat tax rates and thirty two have progressive tax rates, with the number of brackets varying widely by state (Hawaii, for example, has 12 brackets!). Some states tie their standard deduction and personal exemptions to the federal tax code, others do their own thing, or offer no standard deduction/exemption at all.

How does this calculator deal with all this complexity? It doesn't.

You are allowed to enter a single flat tax rate for state taxes, and if you do we compute state taxes as:

State taxes = (partnerA income + optional partnerB income) * state tax rate.

Social Security taxes

1. We calculate social security tax due as

Social security tax = social security tax for partnerA + (optionally) social security tax for partnerB

2. For each partner we calculate the amount of income subject to social security taxation.

Income subject to social security taxation = minimum(income input to calculator, social security income limit).
The income limit in 2022 is $147,000. Income above this amount is not subject to social security taxes.

3. Then we calculate the tax for each partner

Social security tax = Income subject to social security taxation * social security tax rate.

Medicare taxes

Medicare tax = (Total income below the threshold * medicare tax rate) + income over threshold * (medicare tax rate + additional medicare tax rate)

Based on the filing status you chose, we select the threshold income.

For MFJ the threshold is $250,000. For single is it is $200,000.

Child tax credit

If you entered a non-zero number of dependent childrent, we calculate the child tax credit for you.

1. The child tax credit has income phaseouts. The threshold is $400,000 for a filing status of MFJ and $200,000 for single. If your income is below the threshold

child tax credit = number of dependent children * $2000

2. If your income (based on your filing status) is above the thresholds, the credit is reduced by $50 for every $1000 above the threshold. The math looks like this

child tax credit reduction = ((total income - threshold income)/1000) * 50
child tax credit = (number of dependent children * $2000) - child tax credit reduction
An example might be helpful. If you are MFJ with an income of $440,000 and have one dependent child: child tax credit reduction = (($440,000 - $400,000)/1000) * 50 = $2000
child tax credit = $2000 - $2000 = $0

Note that the child tax credit has temporariy been increased above $2000 (for 2021 - we don't yet know what it will be for 2022). The calculator does not take this temporary increase into account.

Dutch taxes

This is the formula the calculator uses to compute your Dutch taxes

Dutch taxes owed = box1 tax - arbeidskorting - algemene heffingskorting - inkomensafhankelijke combinatiekorting - kinderbijslag

In the following sections we will describe how we calculate each component of this formula.

Box1 tax

1. The first thing we do is convert the income you entered for partnerA and partnerB from USD to EUR.

2. Then we check if you chose 'Yes' for the 30% ruling. If you did, we assume that the ruling applies to the income of both partnerA and partnerB.

Taxable income partner A = 70% of partner A income
Taxable income partner B = 70% of partner B income

3. We then apply the box1 tax brackets to each partner's income and come up with the box1 taxes due to each person.

Our introduction to Dutch taxes post explains the box system in detail.

Arbeidskorting aka the employees tax credit

The arbeidskorting is calculated separately for each partner based on their income. We use the belastingdienst tables to determine the amount of the credit.

Algemene heffingskorting aka the general tax credit

The algemene heffingskorting is calculated separately for each partner based on their income. We use the belastingdienst tables to determine the amount of the credit.

Inkomensafhankelijke combinatiekorting aka the income-dependent combination tax credit

The calculator computes this credit if

• You entered income for both fiscal partners and
• You indicated that you have at least one minor child below the age of 12

If these conditions are met

1. We choose the lesser of partnerA and partnerB's income. This tax credit is based on the income of the lower-earning fiscal partner. Only one partner gets this credit.

2. We use the belastingdiesnt table to calculate the credit.

Capping the tax credits

For very low incomes the tax credits may end up being more than the box1 tax owed. In this case we cap the credit to the amount of tax owed. In other words, you cannot get more credit than the tax that you owe.

An example might be helpful. Imagine that you entered a taxable income of €5000.

On an income of €5000, box1 taxes are €1853 and the arbeidskorting is €227.
The algemene heffingskorting for an income of €5000 is €2888.
But your tax burden is only €1626 (€1853 - €227), so we set the algemene heffingskorting to €1626.

Tax credits and your fiscal partner

Imagine that you make no income. Your algemene heffingskorting or general tax credit is €2888. But you can't take the credit because you have no income tax against which to offset this credit. In this case if your fiscal partner makes enough money you may be entitled to a portion of the credit. This belastingdienst page shows how this works with an example. However, the benefit of using your fiscal partner to earn some amount of tax credit is being phased out. In 2022 the amount is very small (less than €200) and will be 0 by 2023, so we have chosen not to implement this in the calculator.

Kinderbijslag aka the child benefit

The kinderbijslag is not technically a tax credit, but in effect it acts as one. For every child you receive a benefit once every quarter. The amount of the benefit is

• For ages 0 to 5 years €230.69
• For ages 6 to 11 years €280.13
• For ages 12 to 17 years €329.56

The calculator only takes as input the number of children, not their ages. So we use an average child benefit amount of €280.12.

kinderbijslag = €280.12 * number of children * 4