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Polish Deal 2.0. – Changes in PIT rates and business activity

The Act of 9 June 2022 amending the Personal Income Tax Act and certain other acts, the so-called Polish Order 2.0, was signed by the President on 13 June 2022.

The new PIT rate will be applicable for the entire tax year, i.e. from January to December 2022, and will apply to employees, entrepreneurs, contractors, as well as persons earning income on contracts for specific work, although in fairness it has to be said that not every taxpayer will be able to make use of it already with respect to income for 2022. For these taxpayers, however, from 1 July 2022 PIT will be collected at the rate of 12%, while for the period from 1 January to 1 July 2022, when tax was settled at the rate of 17%, the overpaid tax will be refunded in the annual return.

image 2 - Polish Deal 2.0. - Changes in PIT rates and business activity
One should also remember about a kind of III tax threshold, i.e. solidarity contribution, which is obligatory for persons with the highest income, exceeding PLN 1,000,000 annually. However, this income is determined in a different way than in the case of the other tax thresholds, covering a broader group of incomes.

However, the solidarity surcharge does not cover, inter alia, income from dividends, from the sale of real estate, from undisclosed sources of income, income subject to lump-sum taxation (tax card or lump sum) and income of natural persons subject to the Act on Succession Management of a Natural Person’s Enterprise.

Instead, the lower tax scale is intended to partially compensate for the lack of deductibility of health contributions and to replace the newly introduced middle class allowance, which at the beginning of the year caused quite a stir in the tax system with its complicated calculation. Consequently, it has been repealed, so the enlarged appetites of taxpayers must be compensated.

However, in some cases, the middle class relief will continue to operate in the 2022 return. Those for whom the middle class relief will be more favourable than the new tax scale will be able to apply it.

The change in the tax scale will also result in a decrease in the monthly tax-reducing amount. Under the current rules, the tax reduction amount is calculated as follows:

30 000 zł x 17% tax = 5 100 zł -> annual amount
5 100 zł / 12 months = 425 zł -> monthly amount

Due to the reduction of the tax rate to 12%, the new tax reducing amount will be respectively:

30 000 zł x 12% tax = 3600 zł -> annual amount
3600 zł / 12 months = 300 zł -> monthly amount

Entrepreneurs will be able to apply the 12% tax rate already when calculating the advance tax payment for June (paid in July). In addition, if the new tax scale proves more favourable for flat-rate or flat-rate taxpayers, they will be able to make another choice.

As mentioned above, not all PIT taxpayers will be able to switch to a smaller tax scale. In an obvious way, so to speak “automatically”, it will affect taxpayers who already settle “on the tax scale”. Entrepreneurs on a flat tax will be able to make the decision ex post, i.e. after the end of the tax year. Lump-sum taxpayers, on the other hand, will make their decision after the end of the tax year or during the tax year. In the latter case, they will pay PIT under the general rules for half of the tax year.

Two scenarios for making the election are currently presented:

  • in an annual settlement by 30 April 2023 – the condition is to keep proper accounts from 1 January to 31 December 2022. Then entrepreneurs will pay lower PIT for the whole year 2022.
  • until 22 August 2022 – for lump-sum entrepreneurs who do not want to keep accounts retrospectively from 1 January 2022. Then they will pay lower PIT only from 1 July 2022.

Another change that the New Polish Deal will introduce is the partial restoration of the possibility to deduct health contributions.

Pursuant to the Act of 27 August 2004 on health care services financed from public funds (Journal of Laws of 2021, item 1285), flat-rate taxpayers will be able to deduct 50% of health insurance premiums paid in a tax year

  • on account of non-agricultural activity taxed in the form of a lump sum on registered income,
  • for persons cooperating with a taxpayer taxed in the form of a lump sum on registered incomes

– if they have not been repaid to the taxpayer in any form.

Entrepreneurs using tax card will be able to deduct 19% of the health contribution paid from the tax card.

On the other hand, taxpayers settling according to a flat rate will be able to deduct the contribution, but up to the limit of 8700 PLN per year for 2022.

This benefit will be completely deprived of the taxpayers who settle according to a scale, which is justified by the drafters by lowering the PIT rate. However, they forget that in this case the health contribution is an additional, hidden tax calculated at a rate of 9%, which makes 21% in total. So better than from 1 January 2022, but still worse than before that date.

Compared to 2021, from 2022 there will also be an increase in the number of tax reliefs/preferences that can be applied, ie:

  • reinstatement of joint taxation with a child,
  • increase in the amount of earnings that a child may earn without losing tax preferences for parents,
  • abolition of adding family pensions of minor children to the income of a parent,
  • new rules regarding maternity allowances and the allowances to which they are entitled: the young allowance, the return allowance, the allowance for 4+ families, the allowance for working seniors (also granted to parents and guardians who take children for upbringing).

The New Polish Order, although a partially beneficial change for taxpayers, for employers means further formalities and the need to modify accounting systems.