The work-related costs scheme and free margin in 2026
Written by Ilias Aarrass7 min read · Published on · Last reviewed on 
In short
The free margin in 2026 is 2 per cent over the first € 400,000 of taxable payroll and 1.18 per cent above; on the excess the employer pays an 80 per cent final levy.
- With a payroll of € 500,000 the free margin is € 8,000 plus € 1,180, so € 9,180.
- Targeted exemptions, such as travel up to € 0.25 per kilometre and work-related training, do not use up your free margin.
- An allowance only lands in the free margin once you designate it as final-levy pay no later than at payment.
- If you are a director-shareholder of your own BV without staff, your customary salary counts as payroll, so you have a free margin too.
As soon as you employ staff, you deal with the work-related costs scheme. The WKR determines what you may reimburse, provide or make available to employees tax-free. At its heart is a pot called the free margin: stay under it and it costs you nothing extra. Go over it and you pay an 80 per cent final levy on the excess. This article explains how to calculate that margin, what does and does not count towards it, and how to avoid a nasty surprise in December.
How big is the free margin in 2026?
The free margin is a percentage of your taxable payroll, in two brackets. In 2026 it is 2 per cent over the first 400,000 euros of payroll and 1.18 per cent over everything above that.
Taxable payroll means the total wage for payroll taxes of all your employees combined. If you are a director-shareholder of your own company with no other staff, your own customary salary counts too. So you have a free margin as well.
| Payroll bracket | Percentage |
|---|---|
| First € 400,000 | 2.00% |
| Above € 400,000 | 1.18% |
Worked example: payroll of € 500,000
- 2.00% over the first € 400,000
- € 8,000
- 1.18% over the remaining € 100,000
- € 1,180
Result: € 9,180 of free margin for that year
What does and does not use up your free margin?
This is where most mistakes happen. Far from everything you give staff eats into the free margin. Three categories fall outside it: targeted exemptions, nil valuations and intermediary costs.
Targeted exemptions: outside the free margin
These allowances are tax-free without using up your free margin, provided you stay within the standard amounts.
- Travel allowance up to € 0.25 per kilometre in 2026; see travel expenses and mileage
- Study and training costs aimed at the job or career; see deducting study costs
- Business meals during overtime or while travelling
- Tools, computers and phones necessary for the job
- Relocation costs for a business move
Nil valuations: at the workplace
Facilities you provide at the workplace itself are valued at zero. Think coffee and tea, workplace furnishings, and work clothing that stays at the office or carries a logo of at least 70 square centimetres.
Intermediary costs: really your own costs
If an employee pays for something that is really a company expense, such as printer paper or parking for the company car, that is not pay. You are simply reimbursing your own costs and the WKR does not come into play.
Designation: the step that is often forgotten
An allowance does not land in the free margin by itself. You must actively designate it, and you do so no later than the moment you pay or provide it. In practice that means booking the item in your payroll records as final-levy pay.
If you designate nothing, the allowance is simply taxable pay for your employee. They then pay payroll tax on it and keep far less net than you intended. This is the mistake that most often surfaces only at year-end.
Exceeding the margin: 80 per cent final levy
If you exceed your free margin, you as the employer pay an 80 per cent final levy on the amount over. That levy is yours to pay, not your employee's, and you declare it in your payroll tax return.
Eighty per cent sounds steep, and it is, but do the maths properly. Paying out the same net amount through regular wages often costs more in the higher brackets. So the final levy is not always the most expensive route, just one you would rather choose deliberately than by accident.
- Track how much free margin you have used throughout the year, not just in December.
- Check per allowance whether a targeted exemption applies. Then it costs you no free margin.
- Explicitly designate everything you want to give tax-free as final-levy pay.
- Before the Christmas hamper or staff party, work out whether you still have margin left.
- Process any final levy in the payroll tax return for the first period of the following year.
And if you have no staff?
If you are a sole trader without employees, the WKR does not apply to you. You are not an employer and you pay yourself no wage; you take money out as private drawings. What you spend on the business simply runs through deductible costs.
That changes as soon as you hire your first employee. Then you deal with payroll administration, payroll taxes and therefore the free margin.
Frequently asked questions
How much free margin do I have in 2026?
2 per cent over the first 400,000 euros of taxable payroll and 1.18 per cent above that. With a payroll of 500,000 euros that is 8,000 plus 1,180, so 9,180 euros.
What happens if I exceed the free margin?
You as the employer pay an 80 per cent final levy on the excess. That levy is yours to pay, not your employee's, and you declare it in your payroll tax return.
Does a Christmas hamper fall in the free margin?
Yes. A Christmas hamper is a benefit you designate as final-levy pay, so it comes out of your free margin. There is no separate exemption for it.
Does the WKR apply to freelancers?
No, not if you are a sole trader without staff, because you are not an employer. If you are a director-shareholder of your own company, your customary salary does count as payroll, so you do have a free margin.
Do I have to designate allowances separately?
Yes. An allowance does not automatically fall in the free margin. You designate it as final-levy pay in your payroll records no later than the moment of payment. If you do not, it is taxable pay for your employee.
Sources
- Work-related costs scheme: free margin and final levyBelastingdienst · belastingdienst.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
