In the draft Act amending the Personal Income Tax Act, the Corporate Income Tax Act and some other laws, i.e. under the so-called scheme "Polish Deal”, a relief is to be introduced for workers (or, otherwise, a ‘mid-class relief’). It will cover taxpayers employed on the basis of a business relationship, employment relationship, overlay work or cooperative employment relationship. It will not be used by entrepreneurs or employees providing work under a civil contract.
The purpose of introducing a reduction in the tax base in the personal income tax (PIT) for workers from a specific income range (shown below). The credit for the middle class is intended to compensate taxpayers for new rules on the payment of health contributions. At present, it is 9% the basis of the measure, i.e.
revenue minus social security contributions. Most of it now i.e. 7.75% the assessment base can be written off from the tax base. Ultimately, this deduction is to be liquidated. The intention of the legislator is to compensate for the loss caused by the abolition of the deductibility of the health premium for workers.
The essence of the mechanism
The relief will consist of deducting from the income of an amount whose amount will depend on the annual income, i.e. Considering the range from 68,412 PLN to 133,692 PLN Annual 5,701 PLN to 11,141 PLN monthly. These revenues will not be taken into account revenue reduced by 50% tax-deductible costs for creators’ exercise of copyright and performing artists’ exercise of related rights, or for their disposal of those rights, specified under Article 22(9)(3) PIT Act.
The employee relief will be applied in the annual accounts and already in the calculation of the advance on income tax by the undertaking, which will apply the reduction for the months in which the taxable person will obtain revenue from the title referred to above from the undertaking.
The amount of the staff allowance will be determined by two separate designs. This choice will depend on annual revenue, i.e. In the first range from 68,412 PLN to 102,588 PLN and In the second range from 102,589 PLN to 133,692 PLN. So that's right from 5,701 PLN to 8,548 PLN and from 8,549 PLN to 11,141 PLN A month.
Amount of the annual allowance for employees for first the range is calculated as follows:
(revenue from work x 6.68%) – 4,566 PLN
0.17
For the second range, the amount of the annual allowance shall be:
‑(revenue from work x 7.35%) + 9,829 PLN
0.17
In turn for the purposes of monthly calculation of advance payments for income tax the amount of relief for first the range will be calculated according to the following formula:
(A x 6.68%) – 380.5 PLN
0.17
For the second range, according to the following formula:
‑(A x 7.35%) + 819.08 PLN
0.17
- where A means the income obtained by the taxpayer in the tax year from the business relationship, the employment relationship, the overhead work and the cooperative employment relationship (which are taxable according to Article 27 PIT Act).
It must be stated that for income below the above-mentioned range, the loss caused by the lack of deductibility of the health contribution will be offset by a new higher tax-free amount of 30,000 PLN. In turn, for revenues above this range, workers will pay a higher tax.
Monthly calculations
Designed section 2a under Article 32 The PIT Act states that in the months in which the taxpayer obtained income from the above-mentioned titles in the workplace, 5,701 PLN to 11,141 PLN, the payer (i.e. the workplace) reduces the employee's income by the amount of relief for employees.
It follows that if, for example, the employee’s salary in January does not exceed the amount 5,701 PLN, the employer will not take allowance this month for the calculation of the income tax advance. In February the employee will earn 7,000 PLN. In this situation, the employer will apply the relief for this month.
In March, the staff member will receive a payment of 11,142 PLN. In this case, the relief cannot be taken into account again in March.
Annual calculations
As mentioned above, the final application of the annual clearance allowance remains.
As planned section 4b, which will be added to Article 26 The PIT Act, a reduction for workers of the amount determined on the basis of the annual accounts, shall apply if the taxpayer's annual income is at least 68,412 PLN and do not exceed the amount 133,692 PLN.
Therefore, if the employee’s annual income is exceeded at least by 1 PLN (For example, they will rise 133,693 PLN), No relief will be granted. In that case, the employee will have to pay the tax as part of the annual statement. This may result in employees not wanting to accept December bonuses for fear of exceeding the limit.
The same will happen if the taxpayer's income is even by 1 PLN less than the threshold 68,412 PLN (or 68,411 PLN). For this to happen, that by 11 months the employee will receive 5,701 PLN, and in the last month will receive 5,700 PLN remuneration.
The choice of the appropriate formula and the calculation of the amount of the relief will require the adaptation of staff departments in the workplace to new conditions. Furthermore, both the employer and the employee should keep track of the amounts paid, particularly if they are subject to large fluctuations in order to check whether the relief can be applied in a given situation.
It seems that the introduction of relief for such a broad group of taxpayers may raise doubts as to whether the general principles which have led to its implementation are correctly formulated. In addition, the use of complex formulae (in first the draft version of the bill included designs 8 post-community places) will make it even more difficult to find taxpayers in an already less intuitive tax system [1].
In this context, it can be cited that: sixth edition of the international ranking of the competitiveness of tax systems prepared by Tax Foundation, the Polish tax system was assessed as third worst among those included 36 OECD countries. The biggest problems of the Polish tax system in the light of the ranking were mainly identified by complications associated with numerous preferences and exceptions. It is not difficult to note that the above changes may not improve this situation [2].
[1] Based on: Draft Amending Act and explanations to this project at:
- https://www.sejm.gov.pl/Sejm9.nsf/druk.xsp?nr=1532#xd_co_f=ZGE5MDVmN2EtZmNjOS00MDVkLTlmNDgtMTJkN2E5Nzg0NjYz~
- https://www.rp.pl/podatki/art18876511-polski-lad-pis-ulga-dla-klasy-sredniej-w-pit-tylko-dla-pracownikow
- https://www.prawo.pl/podatki/ulga-dla-klasy-sredniej-dla-pracownikow-w-projekcie-polskiego,509721.html
- https://www.pit.pl/aktualnosci/polski-lad-skomplikowane-zasady-obliczania-ulgi-dla-kasy-sredniej-1005818
Dziennik Gazeta Prawna of 9 August 2021 No 152 (5560) – Tax Monday p. 1
[2] https://podatki.gazetaprawna.pl/artykuly/1493461,tax-foundation-polski-system-podatkowy.html
Author: Mateusz Krawczyński
Junior tax consultant in Russell Bedford Poland. Graduated from bachelor's degree in Logistics and Master's degree in Finance and Accounting. Previous professional experience in tax matters, gained at one of the Big Four companies. He specializes in tax on goods and services, in particular with regard to VAT settlements in local government units.