Tax changes related to employment in Poland from the payer’s perspective
Tax remitters and individuals are adjusting to substantial legislative changes to the Polish tax landscape in 2022. Anna Misiak of MDDP summarises the main developments and their impact.
New regulations that have significantly changed the Polish tax system for the second time in 2022 came into force on July 1. The tax amendment, the so-called Polish Deal 2.0, modifies the personal income tax (PIT) regulations introduced on January 1 2022.
Below is a summary of the key changes introduced by the Polish Deal 2.0 with regard to the taxation of employment income.
Reduced PIT rate
One of the main changes is the reduction of the lowest PIT rate from 17% to 12%, applicable to income up to PLN 120,000 ($26,000). The change relates to taxpayers settling their taxes under general rules; for example, employees, freelancers, and board members. The new tax scale is to be applied to income for the entire year 2022, whereas tax remitters apply it when calculating advance tax payments on salaries paid from July 1 2022.
As of January 1 2022, the annual tax-free amount for taxpayers earning income taxed under the general rules was increased to PLN 30,000. Although the tax-free amount remains unchanged, due to the reduction of the lowest tax rate, a new monthly tax-reducing amount is lower and amounts to PLN 300 (PLN 3,600 per year).
Elimination of the middle-class relief
With the entry into force of the Polish Deal 2.0, the middle-class relief was repealed. The relief had been in effect since the beginning of 2022, and applied to employees who fell within the appropriate income limit, both on a monthly and annual basis.
However, it was widely criticised due to the complicated algorithms used for its calculation, differing at the monthly and annual calculation stages. Importantly, the elimination of the relief applies to the entire year 2022. Taxpayers can still settle their annual tax for 2022 according to the middle-class relief, if it is more favourable for them.
Elimination of double counting of PIT advance payments
With the introduction of substantial tax changes on January 1 2022, the tax burden of many taxpayers increased significantly. This situation met a fusillade of criticism. To alleviate the situation, the Polish legislator introduced a mechanism of double counting of PIT advance payments.
According to the obligation, a tax remitter paying income to employees and freelancers up to PLN 12,800 per month was supposed to calculate advance payments under the rules binding in 2021 and the rules of 2022 and choose the more favourable option for the taxpayer. The Polish Deal 2.0 repeals the obligation of double counting of PIT advance payments.
Increased remuneration of the tax remitter for timely payment
Until July 1 2022, the remuneration of the tax remitter for the timely payment of taxes to the state budget was 0.3% of the amount of the collected taxes. The remuneration of tax remitters calculating monthly tax advances on income taxed according to the tax scale has been increased to 0.6% of the amount of collected taxes.
Statements affecting the calculation of PIT advance payments
The employer calculates PIT advances using the tax-reducing amount if a PIT-2 statement is delivered by the employee. In response to taxpayers' problems with PIT-2 statements, the legislator has provided a new solution. The taxpayer will be able to submit a PIT-2 statement to a maximum of three tax remitters, indicating that a given tax remitter is entitled to reduce the advance payment by the amount constituting:
1/12 of the tax-reducing amount;
1/24 of the tax-reducing amount; or
1/36 of the tax-reducing amount.
Moreover, the Polish Deal 2.0 will provide for the possibility of applying the tax-reducing amount on a monthly basis to the income of individuals employed under a contract of mandate or contract for specific work. The possibility is reserved only for employees at present.
In addition, the possibility to submit a request to the tax remitter not to withhold PIT advance payments – which is available, among others, to contractors and persons performing specific works – will be extended to employees. Taxpayers are entitled to submit an application if they expect that their annual income subject to the tax scale taxation will not exceed PLN 30,000.
An employment contract is one of the basic forms of employment in Poland. However, employees are increasingly choosing alternative forms of employment.
A B2B contract can be an attractive alternative to the employment contract. This is the trend in the IT sector in Poland, where over a third of the specialists are working under B2B contracts, and paying, in general, lower PIT than employees.
The Polish Deal 2.0 also introduced many changes for entrepreneurs. One of the main amendments is the possibility of changing the form of taxation of business income (revenue) to the tax scale applied in 2022 during or after the end of the year.
In addition, the Polish Deal 2.0 introduced a possibility of partial deduction of health contributions, depending on the chosen method of taxation.