US Expat Taxes for Americans Living in the Netherlands – What You Need to Know
There are an estimated 35,000 Americans living in the Netherlands.
Living in the Netherlands is a great experience for plenty of reasons – the friendly people, the relaxed, stylish culture, the bikes and canals, and the food to name just a few. Plus everyone speaks English. What’s not to like? As an American expatriate living in the Netherlands though, what exactly do you need to know regarding filing US expat (and Dutch) taxes?
All US citizens and green card holders who earn a minimum of $10,000 (or just $400 of self-employment income) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or where their income is generated.
While Dutch income taxes are relatively high, the good news is if you are paying income tax in the Netherlands, there are various exclusions and exemptions available to prevent you having to pay tax on the same income to the IRS too.
US taxes – what you need to know
If you earn above US$10,000 (or $400 if you’re self-employed), you are required to file form 1040. While taxes owed are still due by April 15th, expats get an automatic filing extension until June 15th. This can be extended still further online until October 15th.
If you have foreign assets worth more than US$200,000 (per person), excluding your home if it is owned in your own name, you must also file form 8938 declaring them.
If you had over US$10,000 in total in one or more foreign financial accounts at any time during the tax year, you must also file FinCEN form 114, otherwise known as an FBAR (Foreign Bank Account Report).
“The Netherlands taxes its residents on their worldwide income; non-residents are subject to tax only on income derived from specific sources in the Netherlands.”
If you are paying income tax in the Netherlands, there are several mechanisms that allow you not to pay tax on the same income to the US too. The two primary ones are the Foreign Earned Income Exclusion, which allows you to exclude the first around US$100,000 of foreign earned income from US tax if you can demonstrate that you are a Dutch resident, and the Foreign Tax Credit, which gives you a dollar tax credit for every dollar of tax you’ve already paid in the Netherlands. The Foreign Tax Credit is typically a better option if you pay more tax in the Netherlands than you would to the IRS, as you can carry the excess credits forward for future use. Don’t forget though, even if you don’t owe any tax in the US, if your income is above US$10,000 (or $400 if you’re self-employed) you are still required to file.
The US and Dutch governments share taxpayer info, while Dutch banks pass on US account holders’ account info to the IRS, so ensure that you file and filly declare your finances. Frustrating as it may be, the penalties for not filing or incomplete disclosure for expats are stringent to say the least
If you’re a US citizen, green card holder, or dual citizen and you have lived in the Netherlands for a while but you didn’t know that you were required to file a US tax return, there’s no need to panic: there’s a program called the IRS Streamlined Procedure which allows you to catch up on your filing without facing any penalties. It’s better not to put this off though, as the IRS is actively pursuing expats.
Dutch taxes – what you need to know
The Dutch tax authority is called Belastingdienst. If your only source of income is employment in the Netherlands, you don’t need to file a return. Otherwise, Tax returns should be filed by 1st May.
Americans are considered resident in the Netherlands if they have a permanent home, have bank accounts or employment, have a family, or stay for a prolonged period in the Netherlands.
Dutch income tax rates range from 9.45% to 49.5%. As Dutch income tax rates are higher than in the US, for many Americans living in the Netherlands it will make sense to claim the Foreign Tax Credit.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in the Netherlands, you contact an expat tax specialist.