How will the deduction of education costs work out? Is it a full refund or does it depend on the applicable tax rate?
Article ID: 306 | Last Updated: Wed, Dec 23, 2015 at 2:38 PM
This question relates to http://www.expatax.nl/kb/article/can-i-deduct-my-education-costs-24.html and http://www.expatax.nl/kb/article/can-i-deduct-the-costs-of-my-mba-study-of-eur-55-000-in-my-dutch-tax-return-231.html .
Hi. Could you please advise how the deduction of education cost is applied? Are the 15,000 euros refunded in full each year?- or simply applied as a reduction to the taxable income? Example: salary of 75k euros less 15k euros = 60k euros taxable income; in which case the allowance would correspond to the non-taxed income only (roughly 48% of 15k euros). Thank you.
The education costs are deducted from your taxable income. This means that the benefit depends on the applicable tax bracket . If due to the deduction your taxable income (partially) falls into a lower tax bracket also the benefit will be reduced.
If your income falls into the highest tax bracket, also after the deduction of the education costs, your benefit will be 52% of the education costs. In your example part of the deduction will fall in the 52% tax bracket and part in the 42% tax bracket, so an average benefit of 48% seems correct.