Polish Deal 2.0: modifications of PIT and social and health insurance contributions

Dentons

An amended version of the Polish Deal will come into effect on 1 July. Its main objective is to simplify settlements and replace regulations that have caused various interpretation doubts in practice with new solutions.

Below we present the most important tax, social security and health insurance changes.

1. Elimination of the middle class tax relief (with a guarantee of no negative impact on taxpayers)

The middle class deduction was supposed to be a solution compensating for the lack of possibility to deduct health care contribution. Due to its complexity and practical problems with its application, the middle-class relief is history as of July 1, 2022. The compensatory effect to the non-deductibility of the health care contribution is to be achieved by reducing the rate of the first PIT tax threshold from 17 percent to 12 percent.

As a result of these changes, there will no longer be an obligation to take the relief into account when calculating PIT advances for the period from January to June 2022. However, if it turns out that taking the relief into account during the 2022 tax return proves more advantageous for the taxpayer than the new rules, such a person will exceptionally have the opportunity to take advantage of it. If the tax liability calculated using the rules effective July 1, 2022 is higher than the liability calculated using the rules in effect prior to July 1, 2022 (i.e., taking into account the middle class relief and the 17 percent PIT), the tax authority will refund the taxpayer the resulting difference. Both the calculation of the amount to be refunded, if any, and its refund do not require any action on the part of the taxpayer and the tax agent - it will be the tax authority's responsibility to inform the taxpayer of the resulting difference within 21 days after the return is filed.

2. Reduction of the basic PIT rate from 17 percent to 12 percent (and the related change in the tax reducing amount)

A significant change will be the reduction of the basic PIT rate (for the first tax bracket) from 17 percent to 12 percent.

At the same time, the tax thresholds will not change - the first one, already raised by the original Polish Deal to PLN 120 000, will remain unchanged.

The new 12 percent PIT rate will already apply to salaries paid for July. However, it is worth noting that the whole 2022 will be settled at this rate, which may in some cases result in overpayment and tax refund after the end of the year.

3. Introduction of (partial) deductibility of health care contributions for businesses settling a flat tax / lump sum / tax card

The Polish Deal excluded the possibility to deduct health care contributions from tax. However, from 1 July this year it was decided to slightly modify this change which is disadvantageous for taxpayers. Taxpayers settling 19 percent PIT on a flat-rate tax will be able to deduct their health care contributions as tax-deductible costs (or reduce their income), but such a deduction will be limited to PLN 8700 per year.

In case of taxpayers who have chosen a lump-sum tax on registered income, they will be able to reduce the tax base by 50 percent of the amount of the health contributions paid. In turn, for taxpayers settling in a form of tax card, there will be a possibility to reduce the tax base by 19 percent of the amount of health premiums paid. However, taxpayers settling in accordance with general rules will not be able to count on similar changes - in their case health premiums will not be deducted.

4. Enabling change of taxation rules for taxpayers on a flat tax and lump-sum tax on registered income

Some taxpayers will be able to change their form of taxation during the year. This applies to persons who in 2022 chose as their form of taxation the lump-sum tax on registered income or the flat tax. They will be able to change the form of taxation to general rules.

The change will be possible until April 30, 2023. - This is the right of taxpayers who settle on a flat or lump sum basis. In case of taxpayers who chose lump-sum taxation, they will be able to change to general rules only in relation to the second half of fiscal year 2022 (not the whole 2022) - in such situation decision should be made till 22 August 2022.

5. PIT-2 changes. New rules of submitting a statement on application of a tax-reduced amount when calculating the PIT advances by the payer

The new regulations do not abolish the obligation for the taxpayer to submit PIT-2 to the tax remitter in order for the remitter to deduct the tax-reducing amount when calculating the PIT advances during the year.

However, the amendment extends the list of persons who will be able to submit such a statement to the remitter. The PIT-2 declaration will also be available to taxpayers who receive income from personally conducted activity, i.e., among others, from mandate contracts, contracts for specific work or managerial contracts.

Moreover, the PIT-2 declaration may be submitted by a taxpayer to up to three tax remitters, and not only to one. When submitting PIT-2 to several payers, it will be necessary to indicate what portion of the tax reducing amount the payer should take into account (e.g. when submitting PIT-2 to three payers it will be 1/3 of this amount in each statement).

6. No more double calculation of advance PIT payments during 2022

After the changes remitters will no longer have to double count and compare PIT advances, i.e. according to the "old" rules from 2021 and those already in force in 2022. The act modifying Polish PIT Law abolishes the mechanism of double counting and comparison of advance payments.

7. Extension of tax exemptions under the so-called zero PIT to include maternity benefits

The new version of the Polish Tax Act provides for further changes in calculating salaries of employees. One of them is to extend the tax exemption under the so-called "Zero PIT" to persons collecting maternity benefit. As the justification of the bill indicates, the implementation of this regulation will make it possible that maternity allowances received by taxpayers, to whom today the relief for young people, the relief for working pensioners, the relief for families of 4+ and the return relief are addressed, will not give rise to the obligation to pay tax if, together with other income covered by the above reliefs, they do not exceed the amount of PLN 85 528 per year.

Thus, from 1 July 2022, benefits paid by an employer should not be reduced by an advance payment of income tax.

8. Mandatory social and health insurance in a limited joint-stock partnership

As of January 1, 2023, general partners of a joint-stock limited partnership will be included in the catalog of persons conducting non-agricultural economic activity and subject to health insurance contributions.

The general partners of a joint-stock limited partnership will not be entitled to an allowance for start-up and the possibility of paying preferential premiums; therefore, they will be obliged to pay the full amount of premiums from the beginning of their business activity.

9. Liquidation of “tax abolition” regulations

In the original Polish Deal the legislator introduced into the Polish tax system the so-called “tax abolition”, which was to enable taxpayers to apply a transitional lump-sum tax to income that is subject to income tax in Poland but was not declared by the taxpayer or its remitter. The rate of the transitional lump-sum tax on income was offset at 8 percent of the tax base (thus, as a rule, at a lower level than the standard rates of CIT and PIT).

The introduced regulations were controversial, (a motion to check the constitutionality of the “abolition” regulations was submitted by the President). It may be assumed that as a result of these doubts, the decision was made to completely resign from this solution - as of 1 July this year the “tax abolition” facility disappears from the Polish tax system.

10. The amendment also provides for other changes, mainly in the area of tax preferences:

  • Restoration of the possibility of joint settlement with a child in the case of single parents.
  • Compensation for public benefit organizations receiving 1 percent of PIT (after changes 1.5 percent of PIT).
  • New preferences for parents, guardians and children.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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