Polish Deal 2.0

The act entered into force on 1 July 2022, although some of the regulations will become effective only from 1 January 2023.

Changes in tax regulations from 1 July 2022

New PIT rates

The tax rate for the first tax bracket was reduced from 17% to 12% for income obtained by employees, contractors, persons hired under a contract for a specific work, retirement and disability pensioners, and business operators paying income tax under the tax scale.

The threshold of PLN 120,000 (from which taxpayers begin to pay 32% tax) and the tax-free amount of PLN 30,000 remain unchanged.

The amount of revenue subject to 50% revenue-earning costs for copyright, related rights, and disposal of such rights (applicable to employees who are authors, artists or performers) also remains unchanged. In 2022, 50% revenue-earning costs cannot exceed PLN 120,000 in the tax year.

The relief for young taxpayers—the limit of revenue exempt from PIT for persons up to age 26 (PIT Act Art. 21(1)(148))—remains unchanged, at PLN 85,528. Persons up to age 26 will thus pay tax only after crossing that limit, and at first the 12% rate will apply. If their taxable income exceeds PLN 120,000, the 32% tax rate will apply.

The new 12% tax rate is applied in withholding of advances from July 2022, but in the annual PIT return it will apply to income taxed at the tax scale and earned by the taxpayer throughout 2022.

No retroactive corrections will be made, even though the 12% rate will apply for the entire year 2022.

IMPORTANT! On all salary paid from 1 July 2022 (i.e. also salary for June paid on or before 10 July), the new tax regulations will have to be applied—the 12% rate as well as the new amount reducing tax (PIT-2) in the amount of PLN 300 per month.

Amount reducing tax—PIT-2

Alongside the new 12% tax rate, the amount of tax relief, i.e. amount reducing tax (PIT-2), has also changed. From 1 January through 30 June 2022 this was PLN 425 per month. From 1 July 2022, this amount will be PLN 300 per month, i.e. PLN 3,600 per year (PLN 30,000 × 12% = PLN 3,600 / 12 = PLN 300). PIT-2 forms already filed will remain valid; there is no need to refile them.

IMPORTANT! In the annual PIT return, the new amount of this tax relief (PLN 300 per month) will apply for the entire year 2022. This means that the difference resulting from the change in the amount of the relief, of PLN 125 per month (PLN 425 ˗ 300 = PLN 125) for the period of January through June 2022 will have to be returned in the annual settlement.

Elimination of mechanism of double calculation of tax advances

A uniform system for calculating tax advances has been introduced—meaning elimination of the obligation to make a double calculation of tax advances for 2022 for employees, contractors, and retirement and disability pensioners earning up to PLN 12,800 per month. Consequently, the regulations extending the deadlines for withholding and remitting income tax advances have been repealed.

Tax remitters are thus no longer obligated to calculate tax advances based on the 2021 regulations and based on the 2022 regulations, compare those amounts, and withhold tax in the lower of those amounts.

IMPORTANT! No retroactive corrections are to be made. This means that tax shortfalls accruing for the period from February through June 2022 will have to settled in the annual tax return.

From July 2022, lawmakers have abandoned the mechanism of double calculation of tax advances, but the amount of the health insurance premium should at all times limit the amount of the PIT advance calculated according to the rules from December 2021. This was probably an oversight by the parliament, which, while amending the tax regulations, did not amend the rules in the Act on Publicly Funded Healthcare Benefits for setting the limit on health insurance premiums.

Under Art. 83(2a) of that act, if the health insurance premium is higher than the income tax advance calculated according to the Personal Income Tax Act in the wording in force on 31 December 2021, the premium calculated for the specific months shall be reduced to that amount. This means that when calculating salaries in lower amounts (e.g. where a person is employed part-time, or for payments for a portion of a month), as well as salaries for persons enjoying an exemption for zero PIT (“relief for young taxpayers” up to age 26, “relief for persons returning from abroad,” “relief for parents of four or more children,” or “relief for working seniors”), it will be necessary to make double calculations:

• For PIT purposes, the advance will be calculated according to the new rules.
• For the purpose of health insurance premiums, the limit of the premium will be set by the PIT advance calculated according to the rules from December 2021.

Elimination of middle-class tax relief

From 1 July 2022, the middle-class tax relief has been eliminated, and is no longer being applied in calculating tax advances. However, to ensure that taxpayers do not lose out from elimination of the middle-class tax relief and do not pay higher tax for 2022, a “hypothetical tax” is being introduced.

The tax office will be required to calculate the hypothetical tax for 2022 for employees and business operators settling income according to the tax scale and generating revenue from PLN 68,412 to 133,692 annually, in accordance with the provisions of the Polish Deal in force prior to the changes of 1 July 2022, i.e.:

• Reflecting the middle-class tax relief
• Applying a 17% tax rate for the first tax bracket
• Applying the amount reducing tax (PIT-2) of PLN 5,100 annually (i.e. PLN 425 per month).

If the hypothetical tax is lower than the tax for 2022 calculated according to the new regulations, the head of the tax office will be required to notify the taxpayer of the amount of the overpayment within 21 days after filing of the PIT return and refund the difference in tax to the taxpayer.

IMPORTANT! The hypothetical tax will apply only to income tax settlements for 2022.

Joint settlement with a child

The possibility of joint settlement with a child in the annual PIT return for single parents has been reintroduced. The relief of PLN 1,500 which was introduced in January 2022 has been eliminated, while the possibility of joint settlement with a child according to the rules in force through the end of 2021 has been restored. The tax-free amount for single parents is PLN 60,000.

In addition, the limit on earnings that may be achieved by the child without losing the tax preferences for parents has been raised from PLN 3,089.00 to PLN 16,061.28.

The act also expands the catalogue of types of income of the child that are not subject to inclusion in the parents’ income, to include the family disability pension. Health insurance premiums will not be deducted from family disability pensions for children up to age 18.

IMPORTANT! The regulations concerning joint settlement with a child entered into force on 1 July 2022 but will apply to all income taxed according to the tax scale earned by the taxpayer from 1 January 2022 onwards.

A single parent may file the relevant declaration with their employer on or after 1 July. Remember that declarations on joint settlement may be filed by employees at any time before the end of the tax year. The employer will reflect that beginning with the month following the month when the declaration was filed (PIT Act Art. 32(1b)).

Other reliefs and parental benefits

Tax reliefs (i.e. tax exemptions for income up to PLN 85,528 during the tax year), such as:

• “relief for young taxpayers” (up to age 26)
• “relief for persons returning from abroad”
• “relief for parents of four or more children”
• “relief for working seniors”

also cover parental benefits awarded to parents and guardians. Under the act, a parental benefit is due for the period of maternity leave, parental leave, or paternity leave.

IMPORTANT! Sickness benefits and care benefits are not subject to the aforementioned tax reliefs! Sick pay is subject to the tax relief. This change will apply to income earned throughout 2022; however, tax advances withheld from parental benefits up to June 2022 will not be subject to correction, but will be settled in the annual tax return.

If the parental benefit is paid by the Social Insurance Institution (ZUS), in the case of the relief for young taxpayers (up to age 26), for ZUS to apply the relief it is necessary to file a request for calculation of tax advances reflecting this relief.

Reminder!

From 1 January 2022 new tax reliefs were introduced for revenue up to PLN 85,528 during the tax year for:

• Parents exercising parental authority over four or more children. This relief applies to each parent separately.
• Persons returning from abroad, for four successive years after moving. An exemption from tax on income not exceeding PLN 85,528 during the tax year is allowed to each taxpayer moving their place of residence to Poland. The exemption for persons returning from abroad will be available with the four successive tax years counting from the beginning of the year in which the taxpayer moved his or her residence, or from the start of the next year.
• Working seniors, who despite having reached age 60 (women) or 65 (men) waive receipt of benefits under a retirement pension, family disability pension, or pension for uniformed services or judges, in order to continue working, performing contracts, or operating a business. This relief extends only to income that is the basis for social insurance. The exemption for pensioners who are professionally active and not receiving pension benefits (up to the fixed limit of PLN 85,528) applies only to revenue earned as part of an official relationship, employment relationship, cottage industry or cooperative employment relationship, under contracts of mandate referred to in PIT Act Art. 13(8), and in non-agricultural business activity. Revenue earned under a managerial contract or copyright agreement is not eligible for this relief.

If the taxpayer is eligible for relief on more than one basis, the amount free of tax for all such revenue cannot exceed PLN 85,528 (plus the amount of income free of tax up to PLN 30,000, for taxpayers settling tax under the tax scale).

Health insurance of commercial proxies

The regulations concerning mandatory health insurance coverage for commercial proxies have been clarified, expressly including them in the list of persons subject to mandatory health insurance. But it should be pointed out that according to the justification for the bill, this change occurred from 1 January 2022 and is now only being expressly stated.

Reminder!

The obligation for management board members and commercial proxies to pay 9% health insurance premiums was introduced from January 2022. Persons appointed to serve under an act of appointment, who receive compensation on this basis, are subject to health insurance. The duty to calculate the 9% premium arises as of the date of appointment and ceases as of removal from office, and the entity paying the compensation is required to notify the person for coverage. In other words, the entity appointing a commercial proxy or management board member and paying their compensation will be the remitter—in the case of a commercial proxy, only of health insurance premiums, and in the case of a management board member, PIT advances as in previous years and also, starting from 2022, health insurance premiums.

Changes in tax regulations from 1 January 2023

Change in the rules for applying the amount reducing tax (PIT-2) for PIT advances for persons with several simultaneous sources of income

At the new tax rate of 12%, the amount of the relief will be PLN 3,600 per year, i.e. PLN 300 per month.From January 2023 the amount free of tax can be applied by:

• Employees
• Management board members
• Persons working under managerial contracts
• Contractors (under a contract of mandate)
• Persons working under a contract for a specific work
• Other persons receiving compensation for work performed personally
• Persons receiving income from property rights
• Taxpayers earning income without the intermediation of remitters (e.g. based on an employment contract with a foreign employer).

When several contracts coincide, the taxpayer will be able to split the tax-free amount and authorize a maximum of three remitters to apply the amount reducing the PIT advance, respectively:

• On one contract, 1/12^th of the annual amount reducing tax, i.e. PLN 300 per month
• On two contracts, 1/24^th of the annual amount reducing tax, i.e. PLN 150 per month
• On three contracts, 1/36^th of the annual amount reducing tax, i.e. PLN 100 per month.

Request not to withhold income tax advances

From 1 January 2023, taxpayers who anticipate that the income they earn subject to taxation according to the tax scale will not exceed PLN 30,000 during the tax year will be able to submit to the remitter a request not to withhold income tax advances. This possibility will apply not only to employees, but also to persons working on such bases as a contract of mandate, a managerial contract, or a resolution.

Request to calculate income tax advances without applying revenue-earning costs

From the beginning of 2023, the taxpayer will also be able to submit a request to calculate income tax advances without applying revenue-earning costs. This will apply to the basic costs of PLN 250 per month and the increased PLN 300 per month, as well as 50% costs for exploitation or disposal of copyright.

Calculation of PIT advances after the end of a legal relationship

If a remitter pays any benefits to the employee after the end of the employment relationship, or to a contractor after the end of the contract of mandate, when calculating the advance on income from that legal relationship the remitter will ignore the following declarations and requests previously submitted by the taxpayer:

• PIT-2 declaration
• Declaration on fulfilling the conditions for applying increased revenue-earning costs of PLN 300 (this applies only to the increased revenue-earning costs; the basic revenue-earning costs of PLN 250 can still be applied).

However, in calculating the amount to be paid out, the remitter will still apply requests and declarations on:

• Calculation of advances without applying the exemption under PIT Act Art. 21(1)(148) (PIT-0 for young taxpayers)
• Calculation of advances without applying monthly revenue-earning costs (PLN 250 or 300)
• Resignation from applying 50% revenue-earning costs
• Fulfilment of the conditions for applying PIT Act Art. 21(1)(152)–(154), i.e. “relief for persons returning from abroad,” “relief for parents of four or more children,” or “relief for working seniors”
• Withholding advances applying the 32% tax rate.

Mandatory social insurance and health insurance in joint-stock limited partnerships

General partners of joint-stock limited partnerships will be covered by mandatory social insurance and health insurance.

Analysis of salaries based on change in regulations over time

Assumptions: employee above age 26, employment contract, revenue-earning costs of PLN 250, PIT-2 filed, not a participant in a PPK savings scheme. The calculations below cover only the first tax threshold and do not reflect the mechanism of double calculation of tax advances.