A thorough revision of the Polish Deal: PIT-related changes

On 24 March 2022, a bill amending the Personal Income Tax Act and certain other acts (hereinafter: Amendment) was published.

The Amendment introduces significant modifications to the so-called Polish Deal, which came into force on 1 January 2022. These changes are in principle assumed to be in force as of 1 July 2022 and to affect both the calculation of current PIT advance payments and annual settlements for 2022.

Major changes shall include:

1. reduction from 17% to 12% of the PIT rate applicable to the first income tax bracket.

As of 1 July 2022, the tax scale is supposed to look as follows:

New tax scale
Tax assessment basis in PLN		Tax amounting to
from	to
	120,000	12% minus tax-reducing amount of PLN 3,600
120,000		PLN 10,800 + 32% of the excess over PLN 12,000

The changes to the tax scale shall also result in:

• change in the monthly tax-reducing amount – it shall amount to PLN 300 PLN (previously PLN 425);
• change in the annual tax-reducing amount – it shall amount to PLN 3.600 (previously PLN 5.100).

All taxpayers who settle their tax according to the tax scale, regardless of their income, shall continue to be entitled to the tax-reducing amount.

2. Changes in the tax scale – collection of advance payments under the new rules

 

  2.1. Advance payments on the income from employment relationship

Employers shall calculate advance PIT payments at the rate of 12% (instead of 17%) for an employee’s income not exceeding PLN 120,000.

Above this amount, advance payments shall be calculated, as before, at the 32% PIT rate.

  2.2. Advance payments on income from activity pursued personally and property rights

The PIT rate shall be reduced from 17% to 12% when calculating advance payments on remuneration received among others:

• from mandate contracts and specific-work contracts,
• from managerial contracts,
• for performing the function of a member of the Management Board and a member of the Supervisory Board,
• under property rights.

 

3. Revolution in PIT-2 forms

•   3.1. PIT-2 form not only for employees

The right to file the PIT-2 form (i.e. the form authorizing the tax remitter to apply a tax-reducing amount when calculating the PIT advance payments) shall apply not only to employees, but also to persons receiving remuneration among others:

• from mandate contracts and specific-work contracts,
• from managerial contracts,
• for performing the function of a member of the Management Board and a member of the Supervisory Board,
• under property rights.

 

  3.2. PIT-2 form in the case of several tax remitters

A taxpayer shall be able to authorize up to 3 tax remitters to apply the tax-reducing amount.

Depending on the number of tax remitters and the content of the submitted declaration, the monthly tax-reducing amount applied by a given tax remitter shall be:

• PLN 300 with one remitter,
• PLN 150 with two remitters,
• PLN 100 with three remitters,

  3.3. Updating the PIT-2 form

Tax remitters shall be required to request, by 15 June 2022, that employees update their filed PIT-2 form.

4. New information obligations while hiring employees

Tax remitters shall be obliged to inform newly hired persons about the possibility of submitting forms and requests affecting the calculation of advance PIT payments. This information should be provided before the first payment of remuneration.

At the same time, a taxpayer shall be obliged to withdraw or amend a previously submitted form or application if the circumstances affecting the calculation of the advance payment have changed.

5. Request for not collecting advance payments

A taxpayer shall be able to authorise the tax remitter, by means of a written application, not to collect advance PIT payments in a given year.

The application may be submitted by taxpayers, if they anticipate that their taxable income shall not exceed PLN 30,000 in a given tax year. The application may be withdrawn during the year.

The possibility to submit the application shall apply to employees, contractors as well as other taxpayers who receive remuneration via tax remitters.

6. Deduction of health insurance contributions for persons running a business activity

Entrepreneurs subject to the flat-rate tax (19%) shall be able to deduct from their income (or recognise as a tax-deductible cost) the health insurance contributions paid in connection with their business activity. The amount of the deduction cannot exceed PLN 8,700 annually.

On the other hand, entrepreneurs paying lump-sum tax on the registered incomes shall be able to deduct 50% of the health insurance contributions on their income.

7. Elimination of the middle-class relief

The amendment provides for complete elimination of the middle-class relief. The relief shall be eliminated both when calculating advance PIT payments and when calculating annual tax.

An exception shall apply to a situation in which the annual tax calculated according to the rules from before the entry into force of the Amendment (thus, with the application of the middle-class relief) would be lower than the annual tax calculated with the application of new regulations. In such a situation the taxpayer shall be entitled to an additional deduction from the annual tax base (applicable only to employees and entrepreneurs settling their tax on the tax-scale basis).

8. Changes related to other PIT reliefs

  8.1. Restoration of tax preferences for single parents.

The provisions eliminating the possibility of a joint tax settlement with a child by single parents shall be repealed. This means that these persons, in principle, shall still be able to make preferential tax settlements, after fulfilling additional conditions.

Single parents shall benefit twice from the tax-free amount of PLN 30.000. The joint tax-settlement shall replace the relief of PLN 1,500 introduced from 1 January 2022.

  8.2. Reliefs for raising children

The Amendment provides for an increase in the limit of income earned by adult children (up to 26 years) who are studying, which income affects their parents’ tax reliefs.

Currently the amount is PLN 3,089 and after the amendment it shall be PLN 16,061.28.

This change shall affect the income limits for adult children studying as to the application of the following by their parents:

• the so-called 4+ family relief,
• child relief,
• annual tax settlement under the rules applicable to single parents.

  8.3. Tax relief for seniors

As of 1 January 2023, the exemption shall apply only to those persons who, despite becoming entitled to a pension benefit, have never received it. This means that pensioners who decide to suspend the pension they have drawn to date shall not benefit from the relief.

  8.4. Maternity allowances with relief

Tax reliefs – relief for the young, for the return, for 4+ families, for working pensioners, shall also include maternity allowances granted to parents and guardians taking children for their upbringing. The tax exemption, upon fulfilment of additional conditions, shall be available up to an annual limit of PLN 85,528.

  8.5. Elimination of the monument relief

The amendment provides for the elimination of the so-called monument relief. However, taxpayers shall retain the right to deduct expenses incurred until 31 December 2022. Effectively, therefore, this relief shall be eliminated as of 1 January 2023.

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If you are interested in obtaining further information, or would like to discuss the impact of the above changes please contact:

Anna Misiak	Anna.Misiak@mddp.pl	+ 48 500 046 024
Rafał Sidorowicz	Rafał.Sidorowicz@mddp.pl	+ 48 506 788 582

or your advisor at MDDP.