The Polish Order is one of the major changes to the tax system in Poland, which has finally been voted. In the face of the coming revolution, taxpayers are particularly disadvantaged by the short time available to them, as the planned changes will come into effect as early as 1 January 2022.
One of the flagship assumptions of the Polish Order are changes in personal income tax and changes in the calculation of health care contributions. The amendment will have a significant impact on how much money will be left in the wallets of entrepreneurs, employees, shareholders and management board members of companies. Therefore, it is worth finding out what changes await us. Below I would like to present the key aspects of the amendment, which will change the way of taxing and paying contributions to employees working on employment contracts and on commissioned services contracts:
1. Tax-free amount
Tax free amount will be 30 000 PLN for everyone. So far in Poland there has been a degressive tax free amount, i.e. decreasing with the increase of income. In practice it means that people earning more than PLN 127 000 per year had no free amount.
2. Raising the second tax threshold to PLN 120 000
The changes will affect persons who settle according to the tax scale. Second tax threshold for 32% taxation was applicable above 85 528 PLN, according to the changes it will be increased to 120 000 PLN.
3. No possibility to deduct health contribution from tax
The employee health contribution currently amounts to 9% of the basis of its assessment (gross salary – social security contributions). Additionally, until now a significant part of it reduced the amount of tax, namely out of the 9% paid as much as 7.75% was deducted from tax. As a result of the amendment, the health contribution paid will no longer be tax deductible. In practice, this means an increase in the burden of all those paying health care contributions by 7.75%.
4. Middle class relief in compensation
Lack of possibility to deduct health contribution from tax will be compensated for some employees by applying so-called middle class relief. It will be available to those taxpayers with gross income between PLN 68 412 and PLN 133 692. What is important, the relief will not be available to persons employed on a contract of mandate. It will also be calculated according to a special middle class relief formula, depending on the income:
• revenue between PLN 68 412 and PLN 102 588: (revenue x 6.68 percent – PLN 4566) ÷ 0.17,
• revenue between PLN 102 588 and PLN 133 692: (revenue x (-7.35 percent) + PLN 9 829 ) ÷ 0.17.
The relief can be applied to the annual tax return. If the employee’s income in a given month is between PLN 5,701 and PLN 11,141, the payer will apply the relief already in the calculation of the income tax advance. The monthly tax relief will also be calculated according to a specific formula and depending on the income:
- income between PLN 5 701 and PLN 8 549 (income x 6.68% – PLN 380,50) ÷ 0.17,
- income between PLN 8 549 and 11 141 (income x (-7.35%) + PLN 819,08) ÷ 0.17.
However, it should be borne in mind that if during the year the employee loses entitlement to the relief (e.g. a large pay rise causes the employee to exceed the upper income threshold for the relief or conversely, loss of employment during the year causes the employee to fall below the minimum threshold for the relief) then the relief applied during the year will be recoverable with interest. In order to protect themselves from a possible additional payment, the employee may also make a declaration not to take advantage of the relief in calculating the advance payments of income tax during the year.
5. Taxation of private use of a company car
The rules for taxation of company cars used for private purposes will also be changed. Until now, for private use of a company car, a flat rate of PLN 250 or PLN 400 – depending on the engine capacity – was added to the revenue. According to the Polish Deal, the flat rate will remain unchanged, but the criteria for its application will change. Namely, a flat rate of PLN 250 will be charged to employees using vehicles with a power of up to 60 kW, electric cars and hydrogen-powered cars. In turn, PLN 400 will be added for the use of company cars which do not meet those criteria. In practice, few company vehicles will currently qualify for the lower flat rate. This means that the vast majority of employees will pay a higher tax for the use of company cars.
6. PIT-0 for families of 4+
A parent raising four or more children will be exempt from paying income tax. However, the exemption is of limited application and does not apply, among others, to persons on a contract for specific work, managerial contract or receiving income from the transfer of copyrights.
In addition, the PIT-0 will apply for income up to a certain limit – when the income exceeds the amount:
- PLN 115 528 – for taxpayers settling their accounts in accordance with general rules (in accordance with the tax scale),
- PLN 231 056 – for taxpayers who settle their accounts jointly with spouses with four children.
Income above these limits will be taxed.
Who will gain and who will lose?
In the face of changes, those earning up to 4000 PLN gross will gain the most (150-100 PLN per month/1800-1200 PLN per year). In the salary range between 4000 and 5500 gross the changes will be beneficial for the employee, but rather symbolic (less than 100 PLN per month/1200 PLN per year). People earning between PLN 5500 and 15000 gross will be in a neutral group.
Those earning more will lose more
The negative effects of the Polish Orderl will undoubtedly affect the group of top earners. For a salary of more than PLN 15 000 gross, the loss during the year will be less than PLN 2,000. If he uses a company car, the use of which for private purposes will be covered by a flat rate of PLN 400 – he will additionally lose within the limits of PLN 130 per year. On the other hand, an employee earning PLN 20 000 gross will lose about PLN 6 500 a year on the Polish Order, and a person receiving a monthly salary of PLN 25 000 gross will lose about PLN 11 000 a year.
Dominika Zbonik, LL.B., attorney at law (PL)/tax advisor (PL)