Dutch & U.S. Tax Law: What U.S. Expats Need to Know

You may have moved to the Netherlands for the canals, the culture, and perhaps the professional opportunity of a lifetime. Unfortunately, your move came with two roommates you never expected…the Belastingdienst and the IRS. With the Dutch tax landscape undergoing its most significant transformation in decades, it is extremely important for US expats living in the Netherlands to stay informed and start planning for the future now.

U.S. & Dutch Taxation: Why Do I Have to File in Both Countries?

It is vital to remember the foundational "why" of your tax return. The United States taxes its citizens based on their citizenship rather than their residency. Whether you are a U.S. citizen, a green card holder, or a dual national, the IRS requires you to report your worldwide income every single year, regardless of where that income was earned, how it was paid to you and in what currency.

The Netherlands, by contrast, taxes you based on your residency within their borders. This creates a complex overlap where your salary, investments, and even your savings accounts are scrutinized by two different governments. While the U.S.–Netherlands Tax Treaty exists to mitigate double taxation, it does not exempt you from the filing your US tax return. As an expat you may also be subject to filing FinCen Form 114 (a.k.a ‘FBAR’) yearly to report your non-US financial accounts.

Failing to file is considered a criminal offense, and with increasing information sharing between the Dutch Belastingdienst and the IRS under FATCA, the shadows are getting much smaller.

The 30% Ruling Is Winding Down and What That Means for Your Cash Flow

Starting in 2026 expats have also been hit with the abolishment of two key deductions: one for the additional cost of living and the other for non-business telephone calls back to your home country. While these were removed to level the playing field between expats and Dutch citizens, it’s still another cash flow punch to the gut.

But there’s more…to fund the reversal of VAT increases, the Dutch have not fully adjusted income tax brackets for inflation in 2026. For you, this means your income could fall into a higher tax bracket sooner. In 2026, the upper threshold for the first income tax band is €38,883, while the second band will top out at €79,137. With the top Dutch tax rate at approximately 49.50% for income above €78,426, proactive cash flow planning is no longer optional—it is a survival skill.

When I have discussions with my clients who are coming to the end of their 30% ruling, it can be quite a depressing time as they are planning for a significant decrease in current cash flow. Saying goodbye to the 30% ruling is not going to be easy for many expats, but planning ahead will make the transition easier.

If you moved to the Netherlands for the 30% ruling, check your calendar and make sure you know your end date. This ruling historically allowed qualifying highly skilled migrants to receive 30% of their gross salary tax-free. However, political pressure and budget constraints have led to a phased reduction of this benefit.

If your ruling started after January 1, 2024, your tax-free allowance is capped at 30% for only the first 20 months, dropping to 20% for the next 20 months, and 10% for the final 20 months—a total of five years. More importantly, the partial non-resident taxpayer status was abolished on January 1, 2025. This was the "shield" that allowed expats to be treated as non-residents for their savings and investments in Box 3.

For those who started before 2024, you can keep the 30% rate for your existing period, but even you will lose your partial non-resident status starting in 2027. This means that very soon, your worldwide assets—including your U.S. 401(k), brokerage accounts, and rental properties—will be exposed to Dutch wealth taxation.

Understanding the Dutch Box 3 Wealth Tax

The Dutch Box 3 system, which taxes wealth (think saving accounts, stocks & fund investments, IRA’s, etc.) can be a strange concept for US citizens to grasp at first. Here’s a simple example of a US expat with the same accounts under each system:

Joe is a US citizen living in the Netherlands and is not on the 30% ruling. He has Box 3 taxable assets of 1 million Euro equivalent between his brokerage, IRA’s, old 401K’s, etc. During the tax year Joe received 10K of dividends and no capital gains/losses as he did not sell any of his investments.

• Dutch Taxation: The Netherlands does not tax Joe’s actual income (the 10K of dividends). Instead, they have a different method and have Joe apply a notional rate that the government determines yearly. For 2026 this rate is 6% for investment accounts. So Joe multiplies his 1 million by 6% and this ‘assumed rate of return’ on his investments is calculated to be 60K. This 60K is then multiplied by a percentage based on his assets reduced by debt and a government determined ‘tax free allowance’ (confused yet?). Don’t worry, we did the calcs, and in this example Joe’s Box 3 income is about 56K. This is taxed at 36% for 2026, so his total Box 3 tax is about 20K.
• US Taxation: On his US return Joe reports the 10K of dividends earned on his US tax return and pays tax on only the 10K of income. Let’s assume Joe is in the 35% tax bracket which means 3.5K of US tax will be generated.

What’s important to note: The current Box 3 tax structure created a tax even though no investments were sold. Yes, Joe can use his 10K of dividends to pay for half of the Box 3 tax, but how will he pay the other 10K? He will need to either dip into his cash savings, budget to pay from his employment/salary/self-employment income or sell some of his investments.

Does Joe have to pay both the Dutch and US tax? Not necessarily. While Joe does need to report the income on both tax returns, he will be able to claim a credit on his US return for the Box 3 tax he already paid to the Netherlands.

The Netherlands does have an option where if the actual return is lower than these notional rates, you can now submit proof of your actual returns to reduce your tax bill. However, the Belastingdienst does not make this automatic. You must proactively file an objection or request which requires meticulous documentation of interest, dividends, and realized gains.

The Future of Box 3: What the Proposed Changes Mean

In early February 2026 the Dutch government announced there would be future changes to the Box 3 tax that would change from imputed returns to actual returns. Sounds great in theory, but the proposal included taxing unrealized gains in accounts as well. For example, let’s say a taxpayer has 1 million in Box 3 taxable assets that increases during the year to 1.2 million, the 200K of gain would be included in the Box 3 tax base…even if the taxpayer never sold anything during year!

This proposal generated so much criticism that by end of February, the Dutch Finance Minister announced they would ‘re-review’ and come back with a new plan…so now we wait.

The PFIC Trap: Why Your Local Bank’s Advice Is Dangerous

Many U.S. expats in the Netherlands have excess cash and may be approached by local banks offering to "put that money to work" in an investment account. Be extremely cautious. Most non-U.S. mutual funds and ETFs are classified by the IRS as Passive Foreign Investment Companies (PFICs).

Investing in a Dutch mutual fund can trigger punitive U.S. tax rates and incredibly complex reporting requirements on Form 8621. Often, the tax and accounting costs of a PFIC outweigh the actual investment gains.

Dutch retirement savings are largely systemic and automatic, with mandatory employer pension plans that differ significantly from the voluntary U.S. 401(k) model. While the U.S.–Netherlands treaty provides some guidance on the taxation of these pensions, rolling a Dutch pension into a U.S. IRA (or vice versa) is almost never allowed without a major taxable event.

If you are a remote worker for a U.S. company, you might be eligible for a Backdoor Roth IRA contribution to continue building tax-free wealth. This is a legal loophole that allows high-income earners to contribute to a Roth IRA by first contributing to a Traditional IRA and then converting it. However, if you already have a large balance in a Traditional rollover IRA, this strategy might be taxable and counterproductive. Be careful with doing these on your own, we see very smart taxpayers do this wrong all the time.

FBAR, FATCA, and Form 8938: Reporting Thresholds Explained

As a resident of the Netherlands, you likely have local bank accounts. Remember the FBAR threshold: if the combined maximum balance of all your non-U.S. financial accounts exceeds $10,000 at any point during the year, you must file an FBAR.

If your assets are even higher, for example, over $200,000 as a single filer living abroad—you also have to file Form 8938 with your tax return. Note that the value of real estate is not included for the Form 8938 filing threshold. These forms do not cost you money in taxes, but the penalties for forgetting them can be as high as $10,000 per form per year.

State Taxes: The Obligation That Follows You Abroad

Many expats are shocked to find that their home state still wants a piece of their income. Some states make it difficult and sometimes impossible to break domicile. If you kept your U.S. driver’s license, are still registered to vote in your old district, or have a home sitting empty back home, your state may still consider you a resident. If you have a rental property in the U.S., you almost certainly have a non-resident state filing requirement regardless of where you live in the world.

If your plan is to stay in the Netherlands for a while, make sure to work with a tax professional or carefully read the rules to properly break your state tax domicile. No need to pay for government services you are never going to use in a state where you are not living.

Your 2026 Action Plan

With the abolishment of partial non-resident status, the upcoming 2028 Box 3 changes and the upcoming end to many expats 30% rulings, this is the year to be proactive.

1. Inventory Your Worldwide Assets: Map out every account, pension, and property you own globally to estimate your future Box 3 liability.
2. Plan Your Cash Flow: With higher notional rates in Box 3 and the 30% ruling scaling back, you will likely need more cash to pay Dutch taxes in the coming years.
3. Review Your "Ties": If you are still paying state taxes, consult with us to see if you can legitimately break that residency.
4. Avoid PFICs: Do not buy Dutch or other non-U.S. mutual funds or ETFs without a technical review.

The bottom line? Plan. Plan. Plan. Don’t wait until it’s too late and your 30% ruling ends or you receive a large, unexpected Box 3 tax bill. Make 2026 the year to get your ‘tulips in a row’ when it comes to your worldwide finances. 

Kaitlin M. Krozel, CPA, specializes in cross-border taxation for U.S. expats in the Netherlands. Find her at Krozel Capital, LinkedIn, and her Passport to Wealth Advisor Profile.