Withholding tax: what’s that all about?

Are you a freelancer and did you negotiate a good salary with your client? Good for you! Remember, however, that your gross salary is not all for you. There are still a number of things that need to be deducted, including the withholding tax.

First off: the gross salary stated on your payslip is never the amount that will be paid into your bank account. A number of items are automatically deducted from that amount. This mandatory deduction applies to permanent employees, as well as to freelancers – whether you are employed through payrolling or perform assignments as a self-employed person.
The social security contribution is the first thing to be deducted from the gross salary. This social security contribution is used, among other things, to pay for medical expenses, pensions and unemployment benefits. The remaining wages are your taxable wages. In second instance, the withholding tax, also known as income tax, is deducted from your taxable wages.

What does ‘withholding tax’ mean?

In effect, withholding tax is an advance on your personal income tax. Your employer withholds part of your salary every month. This amount is then transferred to the tax authorities. If you are employed through Tentoo as a temp worker or we handle the admin and financial side of your self-employed activities, we take care of this.
Why is this contribution withheld at the source? The difference between your gross earnings and your net earnings can sometimes lead to surprises. You would thus do better to have a realistic percentage withheld in advance, so that you do not have an unpleasant surprise when you receive your tax return and see the final settlement.

I can choose between different percentages, which is the most interesting for me?

Withholding tax and taxes are closely related to your personal tax situation: the amount of your taxable gross salary (= gross salary – social security contributions) and your family situation. Legally speaking, temp agencies and partners like Tentoo must withhold a specific minimum amount from your earnings. For temporary workers, this minimum is set at 11.11%, although according to an industry agreement, 18% is applied by default. By way of comparison: for permanent employees, the withholding tax is approximately 30%.

As a freelancer, artist or temp worker, you can choose the percentage of withholding tax yourself. If you opt to have only the minimum deducted from your wages, you will have a higher net wage as an interim employee than permanent employees. But, and there is a but. There is a real chance that you will be required to pay a hefty amount when you receive your annual tax return.
To avoid any drama, you can choose to have an increased withholding tax applied. Depending on your professional activity or your family situation, we can calculate the most appropriate percentage for your situation. The scale of your taxable wages mainly play a role in this, but so do your family/household composition, marital status or other family expenses. The income from work that you do in addition to your assignments for Tentoo is also taken into account. So: what you have earned in the current year or what you think you will earn with other employers, temp agencies or as a self-employed person. Only one person has a good idea of this and that is you.

Can I also opt for 0%?

No, as we already mentioned, the legal minimum contribution for temp work is set at 11.11% (and by default 18% applied as a minimum). Moreover, if you apply the above reasoning, a (much) too low deduction would not be very wise. Perhaps the great pay in your bank account will flatter your vanity for a while, but you will find that this elation soon makes way for a sense of dread when you receive your tax return…

What happens if I have chosen too high a percentage?

Sometimes it becomes clear that the applied deduction was too high, for example because your family situation has changed or because your partner has become unemployed. If too much withholding tax was withheld, you get that amount back from the taxes.

Another tip: you can check the tax rates per income bracket for residents of Belgium here (Dutch link): https://financien.belgium.be/nl/particulieren/belastingaangifte/tarieven-belastbaar-inkomen/tarieven#q1. That way you can estimate the percentage of withholding tax that is most suited to your specific situation.

Do you have questions about withholding tax or do you want to contact Tentoo with a more general question? Give us a call: https://tentoo.be/contact/