Paying too much taxes? My Belgian pay slip explained
In 2020 (and beyond) Belgium is still the country with the highest average income tax and tax wedge in the world (OECD, 2020a). I’m willing to bet Americans’ blood would boil seeing my payslip at the end of the month. 52.2% of what my employer pays for me ends up in the hands of the government. For comparison, the US tax wedge for a single with no kids is 29.8% (OECD, 2020b). So, where do these taxes come from? and are there any benefits to paying so many taxes, besides the typical usage such as firefighters, roads, public buildings, etc.?
Belgium taxes income in three major ways:
- Progressive income tax
- Social Security Contributions Employee
- Social Security Contributions Employer
All of these combined plus any payroll taxes, minus any benefits received by the employee are what OECD describes as the salary wedge.
How to read a Belgian pay slip
So how does this translate into a Belgian payslip? You can already see my full payslip above where there are a number of major categories worth your attention. Let us break them down.
- Gross salary
- Social Security Contributions Employee (RSZ)
- Withholding tax
- Tax-free allowance
- Net pay
- For the employer: Social security contributions (patronal burdens)
- Base contributions
- Special contributions
Did you know?
Every employee receives a minimum gross salary in Belgium. This minimum salary is set at €1,625.72 as of April 2021. This is called the guaranteed average minimum monthly income (‘gewaarborgd gemiddeld minimum maandinkomen’ or GGMMI) set by the National Labor Council.
You still pay taxes on this but thanks to our progressive scale and a tax exemption for the lowest salaries, you keep most of the gross. The exact amount Is hard to determine but usually you will receive somewhere between €1200 and €1400 net.
Gross salary
The salary or gross salary is what you negotiate as a worker in Belgium, on this salary you get taxed. In addition to the agreed salary for the regular working hours worked, other salary elements can also appear here. Things like overtime wages, commissions, wages for public holidays, holidays, small-time off, etc. Basically, a lot.
In the above image, you can see (in Dutch) that the gross salary including other cash will be added up to get the basis for my Social Security Contributions.
Social Security Contributions Employee (RSZ)
The personal social security contributions are withheld from the total gross wages and flow to the National Social Security Office. These deductions are used to pay pensions, unemployment benefits, sickness benefits, child benefits, and so on. For white-collar workers, the social security contribution is 13.07 percent of the gross wages. For workers, gross pay is first multiplied by 1.08 and the contribution of 13.07 percent is calculated on it.
If an employee earns the guaranteed average minimum monthly income (1,501.82 euros per month for a full-time employed employee), the social security contributions that are deducted from his wages are reduced by 184 euros for a white-collar worker or 198.72 euros for a worker.
If a white-collar worker earns more of the guaranteed average minimum monthly income but less than EUR 2,385.41 per month, the reduction in his social security contributions are even more complex.
In the snippet, you can see that my gross salary gets taxed first and then the BIK of my salary car gets added. On this amount, my employer pays the withholding tax on earned income. You can also see that a fixed amount gets subtracted. This is a lump sum that is exempt from taxes.
Withholding tax: an advance on progressive income taxes
The gross salary minus the social security contribution is what will get taxed as personal income. To know this total taxable wage, your employer can add some extra details based on your salary package:
- Benefit in kind of a company car
- Double holiday pay or additional holiday pay or holiday pay on termination of employment
- Exceptional premiums or gifts (such as birth or marriage bonuses)
- Execution fees (a severance pay for trade representatives)
Withholding tax on earned income
The withholding tax is calculated based on the total taxable wage. Here, the amount of salary plays a role. Still, the employee’s family situation, the number of dependents, etc., 2 employees with the same wages will therefore not necessarily pay the same withholding tax.
I’m a prime example of this exception. Up until the 2nd of May, I was single was didn’t get any benefit. As a married man with a busy partner getting used to Belgium and thus without an income, my employer withholds less from my taxable salary. This is the so-called marriage coefficient.
However, this withholding tax is only an advance on the total tax that I will ultimately owe. The final bill is drawn up based on the tax return of the following year. If this shows that I paid too much withholding tax, I will get refunded and vice versa. It all depends on your HR department.
Except for ten or so countries, most have taxes on the money you earn on your income. So does Belgium, and this is where a large chunk of my gross salary goes. Though interesting enough, Belgium doesn’t tax the most; that honor goes to Denmark.
For Belgium, in the below table, you can see the figures for 2020:
| Taxable income (EUR) | Rate (%) | Tax on bracket (EUR) | Cumulative tax (EUR) | |
| Over | Not over | |||
| 0 | 13,440 | 25 | 3,360.00 | 3,360.00 |
| 13,440 | 23,720 | 40 | 4,112.00 | 7,472.00 |
| 23,720 | 41,060 | 45 | 7,803.00 | 15,275.00 |
| 41,060 | and above | 50 | ||
Tax-free allowance
However, the Belgian government is generous. Taxpayers are entitled to a tax-free allowance. This tax-free sum is dependant on how many kids are dependant on you, but the base amount is 8.990 EUR for 2020.
What is left: my net pay
Finally, we come to the net salary. This is the amount that remains after the social security, and the withholding tax has been deducted from the gross salary. After the gross/net calculation, some additional corrections can be made, both positively and negatively.
Additional benefits not taxed are:
- Costs reimbursed by the employer upon presentation of proof of payment
- Social subscriptions for public transport (up to EUR 380 per year)
- Mileage allowances.
Additional deductions still deducted from the net wages are:
- Special contribution to social security
- Employee contribution to group insurance
- Benefit in kind of a company car
- Employee’s contribution for meal vouchers (at least 1.09 euros per issued check).
The final result of the salary calculation is the net amount to be paid. That amount is transferred to the employee’s bank account.
For the employer, however, there is more to come.
Social Security Contributions Employer (Patronal burdens)
The employer’s employer’s contributions on top of the gross wages that the employer pays are also included on the payslip but this is purely informational.
Basic contribution
As an employer, you are paid a basic percentage of approximately 25% of the gross wages in the profit sector. In addition to this employer’s contribution, blue-collar workers’ employers pay 15.84% for the annual holiday scheme (at 108% of the gross salary).
Special contributions
In addition to the basic contribution, there are several special contributions. These contributions are “special” because they are not always directly intended for the branches of social security or because they are only due in certain circumstances.
These are, for example, the employer contribution for meal vouchers (maximum 5.91 euros per meal voucher), the employer contribution for group insurance, and the CO2 tax on company cars. Based on these numbers, the employer has to pay extra contributions.
But since they are specifically made to help lower the tax burden on employers, the taxes are usually low or non-existent.
The downside to high taxes
First and foremost, I lose roughly 40% of my gross income. Compared to 12% (married joint tax application) if I were to work in the US. In absolute numbers (roughly speaking, as it depends on your situation), that means for 4535.40 EUR, I’d have 3991 EUR left instead of 2833 EUR. That’s a difference of 1,158 EUR or 34%!
Since I invest a large chunk of my income (~15K per year), I could save even more if I deposited this 34% extra into my investment portfolio.
Compound that by 6% (to be conservative) over 15 years (when I plan to FIRE), and I would have earned 63% more!
For argument’s sake, I didn’t consider the difference in the cost of living and the other tax-free benefits I get. The above just shows that building wealth over the long run is harder in a high tax situation, so a clear downside for the Belgian tax system.
Another disadvantage is the reduced flexibility to do what I want. While strong social security is positive, it does come with certain requirements. One is being available in the job market if I want to keep building up contributions for my pension. Available also means accepting job offers, even though I have enough personal capital. I also have to keep contributing to social security. If not as an employee, it is an independent or government worker.
What is the benefit of such high taxes?
Because of such high taxes, Belgium collects a lot of tax revenue. The biggest benefit is that a doctor’s visit only costs about 5 EUR since most of the cost is refunded. Going to a hospital isn’t dependent on which insurer I’m with, as all hospitals offer a certain standard of health care for a reasonable price and are available for everyone, whether you have a medical history or not, or whether or not you have income. Public transport such as busses and trains are (relatively) cheap and get me across the country in comfort.
In Belgium, a lot of money also goes into education. Roughly 12 of every 100 euros goes into our schools. But the biggest use of taxes (about 1/5th) goes to pensions. While my pension is based on the income of future generations and is thus unknown, it’s unlikely I won’t receive any pension. But what I will receive is determined by how much I work. It gets tricky here as I don’t plan to work till +65. The entire point of this fight against FIRE is to prevent having to do that!
However, I will still receive something. As a result, I don’t have to save exactly 25 times my annual spending, thanks to taxes.
Sources:
- http://www.oecd.org/tax/tax-policy/taxing-wages-belgium.pdf
- https://www.oecd.org/tax/revenue-statistics-belgium.pdf
- http://www.oecd.org/tax/tax-policy/taxing-wages-united-states.pdf
- https://financeinfo.be/belastingen/belastingvrij-minimum/
- http://www.oecd.org/tax/tax-policy/revenue-statistics-belgium.pdf
Why not move from Belgium if it has such high taxes? Seems like it’d be more beneficial to go somewhere else with lower taxes if your goal is to FIRE.
This is what I have been doing personally. Next stop: USA – more opportunity, higher salaries, lower taxes.
It’s difficult to really grow much beyond a certain point in EU due to the high taxes and lack of high end opportunity for salary increases. Once you’ve peaked, there’s not much more to grow compared to the US.
Hey Cracklord,
Thanks for your comment.
Interestingly enough, that is what I and my wife are considering: moving abroad.
Though not so much the US, more like Canada as we can apply for the Express Entry. It’s true that in North-America the opportunity to earn more with lesser taxes is there, especially for higher paying jobs.
Though, some of the benefits in Belgium can’t be ignored either especially when kids come into play.
So it’s possible you will see a post sometime next year about a move 😉
Greetings!
Mr.FightToFIRE