As of 1 January 2022, regulations of the Polish Deal (Polski Ład) came into force, which brought changes in the income tax acts, in the VAT act and in many other regulations. The changes introduced for CIT taxpayers are revolutionary and in their majority lead to an increase in the tax charge. The changes for PIT taxpayers were to have the opposite effect – they were announced as a historic tax reduction. Is it really so? Undoubtedly, the changes concerning PIT raise the strongest emotions, due to the fact that the PIT taxpayers were the first ones to feel the real effects of the Polish Deal.
Higher tax free amount, higher threshold of the scale
Increasing the tax-free amount to PLN 30 thousand per year for each taxpayer settling according to the tax scale is undoubtedly a plus. The effect of this change is felt in monthly PIT advances starting from January 2022. Doubts arise when a PIT taxpayer has revenues from several contracts. As a rule, the tax-free amount during the year can be applied only to one of such contracts being the title to taxation. This may lead to higher taxation during the year than theoretically calculated in the Polish Deal model, and this form of tax preference will be felt by the taxpayer only in the annual settlement. Will it help here if a taxpayer submits a PIT-2 form? Not necessarily. Once submitted the form is valid for the taxpayer also for the following years. The fact that the form was submitted before the change of the regulations does not matter here.
A good change is also the increase of the tax threshold amount to 120 thousand PLN – up to this threshold the 17% rate applies and above the threshold the 32% rate.
Middle class relief, prohibition on health contribution deduction
The changes to the Polish Deal have resulted in a prohibition of deducting from a tax amount the major part of a health insurance contribution (until the end of 2021 there was a rule according to which an amount constituting 7.75% of the base of a health insurance contribution reduced the calculated PIT amount). In order to reduce the higher tax charge resulting from this change, a middle class tax relief has been introduced, under which income is reduced by an amount calculated according to a formula specified in the act, depending on the amount of earned income. The middle class relief cannot be applied to retirement income. It may be applied to employees and self-employed persons who settle their income in accordance with the general rules. As of 1 January 2022, the relief applies to those earning income between 68,412 PLN and 133,692 PLN per year. There are planned changes consisting in increasing the upper amount entitling to the relief, as well as extending its scope to other categories of taxpayers. The middle class relief, despite being calculated in monthly settlements, may not be available in the annual settlement. This will occur if, in subsequent months, the taxpayer’s income becomes so much higher that it causes it to exceed the amount entitled to the deduction. The taxpayer may submit a request to the tax remitter not to apply the relief. The deduction may be applied by spouses on a joint return, as long as half of their joint income falls within the amount eligible for the deduction, even if they do not individually qualify for the deduction.
New reliefs for PIT taxpayers
The Polish Deal brought a significant modification of the single parent relief, as well as new reliefs, for those raising four children, for working pensioners and for taxpayers returning to Poland.
The single parent relief provides a tax deduction of PLN 1,500 per year. The deduction is available to one parent or legal guardian (the deduction is not divided into months or days of care for a child of each parent). If there is no agreement between taxpayers, the deduction is applied by the taxpayer with whom the child resides. Therefore, the previous deduction for single parents does not apply as of 2022. The settlement for 2021 is prepared according to the rules applicable until the end of 2021.
The relief for a taxpayer with four or more children is eligible for a person who:
- performs parental authority,
- acts as a legal guardian if the child resides with that person, or
- performs the function of a foster family on the basis of a court ruling or an agreement concluded with a Starost,
- in the case of a child who is at the age of majority and in the process of learning – fulfils the alimony obligation or performs the function of a foster family.
The following children are eligible for the relief:
- minors (up to 18 years of age),
- over 18 years old, who, according to separate regulations, receive a nursing allowance or social pension,
- adults up to the age of 25 who study at schools referred to in domestic or foreign regulations governing the educational system or higher education, if these children meet certain requirements in the tax year regarding their income.
In order for the relief to be calculated on a monthly basis, a statement of fulfilment of the conditions for applying the exemption must be submitted to a tax remitter in writing under pain of criminal liability. Alternatively, the relief may be used only in the annual return.
The working pensioner relief is available to individuals who meet all of the following conditions:
- penisoners who are professionally active,
- taxpayer over 60 years of age (female) and 65 years of age (male),
- taxpayer is subject to social insurance on account of obtaining this income,
- taxpayer does not receive a pension or survivor’s pension, or other income indicated in the relevant act.
Also in this case an appropriate statement is required to be submitted to a tax remitter in order to calculate the relief.
The return relief is available to taxpayers who change their tax residence to Poland. Also in this case it is required to meet a number of conditions entitling to the relief. What is important, the return tax relief may be applied in the following 4 years.
Each of the abovementioned reliefs entitles to tax exemption up to the amount of PLN 85 528 per year. However, in case of a concurrence of reliefs, the mentioned amount is at the same time the maximum amount of reliefs jointly in a given year.
Deferment of collection of monthly advance payments
As of January 8th, 2022, the Ordinance of the Minister of Finance on extension of deadlines for collection and remittance by certain tax remitters of advance payments for personal income tax came into force (Journal of Laws 2022, item 28). It applies to monthly advance payments on income up to PLN 12,800 per month and is to be in force until the end of 2022. It provides for calculation of monthly PIT advances according to regulations effective in 2022 and those of 2021, and comparison of those amounts. Construction of the regulations leads to a conclusion that taxpayers using the rules under this Ordinance may – in certain situations – be obliged to make significant PIT surcharges in the annual tax return. The Ordinance does not lead to lower annual taxation and additionally introduces doubts as to the deadlines applying for tax remitters. Another issue is that the effectiveness of the Ordinance is questionable due to its rank – it concerns statutory regulations and it is not possible to change such regulations by a lower-ranking legal act.
Further changes of the amended PIT Act are planned, which are to lead – on the statutory level – to setting the monthly advance payments at a lower amount than it results from the regulations currently in force.