Understanding personal income tax and what the “tax-exempt income portion” really means

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Many taxpayers in Belgium are unsure how income tax is calculated and, more importantly, what the tax-exempt portion really means.
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This article aims to clarify:

• How the progressive tax system works

• What the tax-exempt portion is and how it operates as a tax reduction

• How personal and family situations influence that portion

• How to compute net tax including municipal surcharges

1. Progressive federal tax brackets

Belgium applies a progressive income tax system, meaning that different portions of income are taxed at different rates.

You can always consult the official and updated rates on the SPF Finance website.

📊 Belgian tax brackets (2024–2025)

💡 Important: Only the portion of your income that falls within each bracket is taxed at that rate.

1.1 Note for complementary self-employed individuals

a. General principle

If you have a complementary self-employed activity (for example, you are employed full-time and run a small business on the side), the income from your side activity is added to your main income (salary, etc.) to determine your total taxable income.

This total is then taxed according to the progressive brackets.

That means:

• Lower income portions are taxed at lower rates,

• Higher income portions are taxed at higher rates.

Even a small additional income can push part of your total income into a higher bracket, but only the portion exceeding the threshold is taxed at that higher rate.

b. Step-by-step calculation

1. Determine your professional income from the complementary activity (after deducting allowable expenses).

2. Add this income to your other taxable sources (salary, rental income, etc.).

3. The sum is your total taxable income.

4. Apply the progressive tax rates to this total.

5. Your marginal tax rate (the rate on your last euro earned) might be high, but lower parts of your income still benefit from lower rates.

c. Example

Let’s imagine the following situation:

• Main job: €45,000 per year (gross taxable)

• Complementary self-employed income: €10,000 (after expenses)

➡️ Total taxable income = €45,000 + €10,000 = €55,000

Approximate tax calculation (2025 brackets):

Here, the €10,000 from your side activity falls entirely within the top 50% bracket.

🔹 This does not mean that your entire income is taxed at 50%.
Only the last portion above the €49,840 threshold is.

d. Key takeaway

Your complementary income increases your total taxable income, which can:

• Push you into a higher bracket, and

• Cause only the upper portion of your income to be taxed at the higher rate.

The progressive system ensures fairness : this means that everyone benefits from lower tax rates on the first portions of income, regardless of total earnings.

2. What is the tax-exempt portion?

The tax-exempt portion is the amount of income you don’t pay any tax on.
It’s like your personal tax-free allowance.

Only income above that amount is taxed.

It applies to:

• Employees

• Self-employed people

• And increases with your family situation (children, dependents, etc.)

🧠 Quick glossary :

3️⃣ Let’s take an example:

Step 1 — Calculate basic federal tax

How the tax-exempt portion helps :

Every taxpayer gets a basic tax-free amount.
In 2025, that’s €10,910 for everyone and it increases if you have dependents.
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Tax-exempt amounts depending on different situations :

Other dependents :

In our example :

So in this case we would have :

​€10,910 (base) + €5,110 (for 2 kids) + €1,980 (single) = € 18,000 tax-exempt portion

How is that exempt portion taxed ? :

➡️ How much taxes would that person pay on that amount of 18 000 € ?
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​2 865€ (1) + 1458 € (2) + 672 € (3) (40% on the remaining amount) = which brings us to a total of 4 995,00 €.

3. 🧩 How the exemption is applied

So if the taxable income is €26 000, and you’re entitled to a tax-exempt portion of €18 000.
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Your taxes are not directly calculated on the difference (8 000) €.
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Instead, it’s first computed on the entire €26 000.
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Then, the tax corresponding to the exempt €18 000 ( so in this case we’ve calculated: 4 995€) is subtracted from that total.
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Those €18 000 are always considered to fall within the lowest tax brackets (25 % and then 40 %), so the tax saving you receive is always calculated at those lower rates.

It protects the lowest part of income from taxation, ensuring everyone receives the same basic tax relief.
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In our example, this reduction represents roughly 4 995 € of tax savings.
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So the calculation would look like this : total gross tax = € 7 952 - 4 995 € (tax we would have normally paid on the tax exempt portion of 18 000€) = 2 957,00 €

👨‍👩‍👧 4. Additional family reductions

Single parents or taxpayers with dependent children also benefit from extra deductions, which further lower the total tax.

🧾 5. Net federal tax

🏘️ 6. Municipal surcharges

On top of that amount, every commune adds a small percentage (usually 6–9 %) to obtain the final amount to pay to the authorities.

✅ Final result (Income 2025)

🧩 Key points

1. The tax-exempt income portion is a tax benefit, not a simple income deduction.

2. It always applies to the lowest tax brackets, so the saving is based on lower rates.

3. Dependent children increase this exempt portion.

4. Single parents receive an extra reduction.

5. Progressive rates + local surcharges explain why the effective rate sometimes differs from expectations.

Author - Valesca Wilms

As content marketing lead at Accountable Belgium, Valesca writes about freelancing, self-employment, and taxes based on her own experience as a freelancer.

Who is Valesca ?