Income from work & principal residence - Box 1
In Box 1 the combination of all work related income, income from principal residence (often negative income) and deductions for income insurances and life annuity premiums into a qualifying plan (see details below) are taxed against the following income tax and social security tax rates.
Income from work
All income from work is added up for the income tax calculation. Besides employment income (salary, bonusses, equity income) from current employment, also income from past employment (pension income, social security benefits), freelance income, profit from sole proprietorship, income from pay out of life annuity or income insurance and alimony income are considered as taxable income in Box 1.
In some situations in case substantial interest holders have a claim on their own legal entity company (inkomen uit ter beschikking gesteld vermogen), there is considered to be an interest reimbursement which is taxed in Box 1.
Deduction of life annuity with purpose of pension built up*
In the Netherlands pension can be built up in a tax beneficial way and the tax benefit is limited and based on your previous year's income. The pension system is based on three pillars. First is a government pension (AOW), which is built up through social security. Second is pension built up in a company pension scheme, which is not mandatory, so employers do not have to offer a pension plan. If you do not make full use of the room with benefit through the government pension and employer pension plan, you are considered to have a pension shortage. In case of a pension shortage, you can take out a qualifying life annuity plan with purpose of pension built up and deduct the premiums (use the unused room for tax beneficial built up).
* conditions apply
Income from principal residence and deduction of mortgage interest
The house in which you live is considered as in income source. A small rate of the WOZ value of the property is considered as additional income (eigenwoningforfait) and all finance costs linked to the mortgage for the principal residence (conditions apply) can be deducted. That way, the principal residence often leads to negative income in Box 1, which can be set off against positive income like income from work, lowering the taxable income in Box 1.
Deduction of income insurances
Premiums paid for income insurances, like a disability insurance which pays out in case you end up unemployed due to an accident can be tax deductable.