Payroll taxes 2026: two changes employers must know
Payroll taxes 2026: two changes employers must know
Two recent payroll tax changes have been announced. Below, we outline the key points and practical implications.
Please note that this is a tax measure. Employers are not required to increase their net mileage allowance. However, where a higher allowance is paid, the increased targeted exemption means that up to an additional €0.02 per business kilometre can be reimbursed without payroll tax being withheld.
In guidance published on its website, the Dutch Tax Administration has explained how the retroactive €0.02 increase should be processed in the payroll administration. The explanatory notes suggest that the retroactive effect may be applied in a relatively broad manner.
For example, employers that have already reimbursed more than €0.23 per kilometre in 2026 and treated the excess as taxable wages in the payroll administration may still designate €0.02 as final levy wages (in other words, pay it under the targeted exemption) and correct earlier payroll tax returns. As a rule, taxable wages cannot be re-designated as final levy wages with retroactive effect, but this appears to be permitted in this instance.
The explanatory notes further state that, in such cases, employers may, with retroactive effect from 1 January 2026, reduce the wages by €0.02 per kilometre for each filing period by correcting the payroll tax returns for those periods.
A further practical point is that some employers may have already reimbursed more than €0.23 per kilometre in 2026, designated the excess as final levy wages and paid the 80% final levy. According to the explanatory notes, those employers may offset the final levy paid on the additional €0.02 per kilometre against a subsequent payroll tax return.
The explanatory notes also indicate that the retroactive effect applies where an employee has agreed to sacrifice taxable wages under a cafeteria scheme in exchange for the net mileage allowance or the increase in that allowance. According to the policy decree, employers may also correct earlier payroll tax returns in those cases. We note that wages already received cannot normally be exchanged, but the explanatory notes suggest that this too may be possible here. It is also worth noting that exchanging taxable wages for a higher net allowance may affect income-related benefits, allowances and pension entitlements.
This policy decree anticipates a legislative amendment that will be included in the 2027 Tax Plan. It will automatically expire on 1 January 2027.
Under this exemption, discounts on industry-specific products are covered, provided they do not exceed 20% and, in total, do not exceed €500 per employee per year. In principle, the exemption applies to all employees, regardless of working hours or remuneration, making it an attractive employment benefit for many retail businesses. The exemption was initially abolished when the work-related costs scheme was introduced in 2011, but was reintroduced in 2015 following lobbying by retail businesses. It now appears likely that the exemption will once again be abolished with effect from 1 January 2027.
1. Increase in the targeted exemption for travel expenses to €0.25 per kilometre
To help offset rising fuel costs, the government has increased the maximum tax-free travel allowance from €0.23 to €0.25 per kilometre by way of a policy decree, with retroactive effect from 1 January 2026. More specifically, this change concerns the so-called targeted exemption for reimbursements of business travel, including commuting. The higher amount applies not only to travel by car, but also to other forms of transport, such as bicycles.Please note that this is a tax measure. Employers are not required to increase their net mileage allowance. However, where a higher allowance is paid, the increased targeted exemption means that up to an additional €0.02 per business kilometre can be reimbursed without payroll tax being withheld.
In guidance published on its website, the Dutch Tax Administration has explained how the retroactive €0.02 increase should be processed in the payroll administration. The explanatory notes suggest that the retroactive effect may be applied in a relatively broad manner.
For example, employers that have already reimbursed more than €0.23 per kilometre in 2026 and treated the excess as taxable wages in the payroll administration may still designate €0.02 as final levy wages (in other words, pay it under the targeted exemption) and correct earlier payroll tax returns. As a rule, taxable wages cannot be re-designated as final levy wages with retroactive effect, but this appears to be permitted in this instance.
The explanatory notes further state that, in such cases, employers may, with retroactive effect from 1 January 2026, reduce the wages by €0.02 per kilometre for each filing period by correcting the payroll tax returns for those periods.
A further practical point is that some employers may have already reimbursed more than €0.23 per kilometre in 2026, designated the excess as final levy wages and paid the 80% final levy. According to the explanatory notes, those employers may offset the final levy paid on the additional €0.02 per kilometre against a subsequent payroll tax return.
The explanatory notes also indicate that the retroactive effect applies where an employee has agreed to sacrifice taxable wages under a cafeteria scheme in exchange for the net mileage allowance or the increase in that allowance. According to the policy decree, employers may also correct earlier payroll tax returns in those cases. We note that wages already received cannot normally be exchanged, but the explanatory notes suggest that this too may be possible here. It is also worth noting that exchanging taxable wages for a higher net allowance may affect income-related benefits, allowances and pension entitlements.
This policy decree anticipates a legislative amendment that will be included in the 2027 Tax Plan. It will automatically expire on 1 January 2027.
2. Abolition of the targeted exemption for industry-specific products
To help fund the expansion described above, a number of measures have been proposed, including an amendment to the work-related costs scheme. On 23 April, a motion was adopted to abolish a so-called ‘inefficient’ arrangement within that scheme with effect from 1 January 2027. This concerns the targeted exemption for industry-specific products. Further details are expected in the Budget Memorandum (Prinsjesdag).Under this exemption, discounts on industry-specific products are covered, provided they do not exceed 20% and, in total, do not exceed €500 per employee per year. In principle, the exemption applies to all employees, regardless of working hours or remuneration, making it an attractive employment benefit for many retail businesses. The exemption was initially abolished when the work-related costs scheme was introduced in 2011, but was reintroduced in 2015 following lobbying by retail businesses. It now appears likely that the exemption will once again be abolished with effect from 1 January 2027.
