Formally, the USA has no wealth tax. In practice, however, the Box 3 levy comes down to the same thing. How does that work? And do you have to pay tax on all your savings? Tax-free savings in 2021 . This is how you should do it including 4 examples.
Taxation of savings
The Dutch tax system consists of 3 boxes .
- Box 1 , the most famous in which the tax on your wages is determined.
- Box 2 , for DGAs, is of no importance to most people.
- Box 3 concerns the income that you earn from your assets (on 1 January).
The Dutch State assumes that you achieve a fictitious return on your assets. The higher your capital, the more return you are expected to achieve.
Whether you actually achieve this return is not interesting for the tax authorities. This is bad news for savers, because the savings interest rates are much lower than the fictitious return.
The good news, however, is that it is indeed possible to save tax-free , even in 2021. Because the government wants to encourage savings, a tax-free allowance has been introduced. This allows you to save a substantial amount, without paying tax on it.
How much can you save tax-free in 2021?
More good news: the tax-free allowance will be increased significantly in 2021 . In 2020 you could build up a savings of $ 30,846 per person. In 2021, you can even save $ 50,000 per adult tax-free.
If you have children, their assets, if any, will be included in your tax return. Are you filing your tax return together with your tax partner? In that case, your joint tax-free allowance is $ 100,000. This means that you and the whole family can save a substantial amount of tax.
Example # 1: Single Little Saver
Suppose you are a single with $ 5,000 in the bank and no other assets.
Your savings balance is lower than your tax-free allowance and you can therefore save tax-free.
Example # 2: The thrifty couple
You live with your partner and file a tax return together. You have $ 50,000 in savings yourself. Your partner has saved $ 65,000.
Your net worth is $ 115,000. Because you are tax partners, the amount of the tax-free allowance is $ 100,000. You pay tax on $ 15,000.
This amount is lower than $ 50,000 and is therefore entirely in tranche 1. You are considered to have achieved a return of:
- 67% x $ 15,000 x 0.03% = $ 3.02
- 33% x $ 15,000 x 5.69% = $ 281.66
- Total: $ 284.68
You pay 31% tax on this return, so $ 88.26
To make it easier for you, the tax authorities have already calculated the average return for us. For example, you can see in the table that the average percentage is 1.898%.
Indeed, $ 15,000 x 1,898% = 284.70 (2 cent difference due to rounding).
Example # 3: The debtor
Tax-free savings in 2021 as a debtor ? As already mentioned, Box 3 is not just about your savings, but about your entire assets. That means you can deduct any debts (greater than $ 6,000) from your assets. It must then concern debts that fall under Box 3. The mortgage on which you get mortgage interest deduction in Box 1 is therefore not included here.
Do you have $ 100,000 in your bank account, but are you in debt of $ 55,000? Then you can include $ 55,000 - $ 6,000 = $ 49,000 in debt. Your net worth is (5 = 100,000 - $ 49,000) $ 51,000. Of this, $ 50,000 is tax-free. You pay $ 5.89 wealth tax.
Example # 4: practice
You live with your partner. You have 3 children, one of which has left home. The two others, aged 16 and 17, still live at home. You and your partner have a joint savings account . It has $ 65,000 on it. You also both have your own savings account, each with $ 5,000.
Your children are also thrifty. All three have $ 4,000 in their savings accounts.
In addition to the house in which you live (Box 1), you have a nice holiday home in Drenthe. This is worth $ 75,000. You have taken out a loan to buy this. This has been partially redeemed and currently stands at $ 36,000.
You must include all the assets of your household with your tax return. In total you own:
- Savings Accounts: $ 65,000 + $ 5,000 + $ 5,000 = $ 75,000
- savings account for children living at home: 2 x $ 4,000 (the third lives on his own and therefore files a tax return himself)
- Vacation Home: $ 75,000
Total Assets: $ 158,000
You also have a debt of $ 36,000. This will be deducted from your assets, after deduction of the threshold ($ 6,000).
Your tax assets are $ 158,000 - $ 30,000 = $ 128,000
Since you're filing together, the first $ 100,000 is tax-free savings. You pay tax on the excess ($ 28,000) at the rate in bracket 1: $ 28,000 x 1,898% x 31% = $ 164.75
Conclusion everyone will save tax-free in 2021
Tax-free savings had been possible in the USA for years. Because the level of the tax-free allowance has increased sharply in 2021, the vast majority of Dutch people have a capital that is lower than the tax-free base.
As a result, tax-free savings in 2021 will be available to almost everyone and you will have money left over .