The Polish Deal, i.e. an Act amending the Act on PIT, CIT and certain other acts entered into force on the 1st of July 2022. The amendment’s objective is to organize chaos and eliminate undesirable effects caused by the first tax change implemented in January 2022. Reduction of PIT rate to 12%, elimination of tax relief for the middle class, changes concerning monuments relief – these are only some of the introduced modifications. In this article, we discuss selected adjustments that were introduced by the amending Act.
Polish Deal 2.0 and the reduction of the PIT rate
The key change implemented by the Polish Deal 2.0 constitutes the reduction of the basic PIT rate from 17% to 12% within the first tax threshold.
Who will pay the lower tax?
Taxpayers who are subject to taxation in accordance with general rules (a tax scale). Namely, people working under the employment contract or civil law contract, as well as entrepreneurs whose taxation method is based on the general rules. Simultaneously, the Polish Deal 2.0 preserved a tax-free allowance in the amount of 30 000 PLN. The lowering of the PIT rate to 12%, however, results in changes in the tax-reducing amount. Until now, the amount was 5 100 PLN per year and from the 1st of July 2022, the tax-reducing yearly sum amounts to 3 600 PLN.
Having this in mind, since the 1st of July 2022, the employers calculate PIT based on the 12% rate (up to the sum of 120 000 PLN). This tax rate should be applicable throughout the 2022 fiscal year and in the following years. As a consequence, in the annual PIT settlement, tax offices will return overpaid tax for the period from January to July 2022.
In the case of entrepreneurs paying flat tax at the 19% rate and a lump-sum tax on registered revenue, the legislator provided a different solution. Since they do not have the possibility to include a tax-free allowance, they can now choose settlement on a tax scale:
- on a flat tax – ex post (after the tax year 2022) for a whole tax year,
- on a lump-sum tax – until the 22nd of August 2022 for the second half of the 2022 year.
Elimination of tax relief for the middle class
The described reduction of the tax rate within the first tax threshold should compensate for another change implemented by Polish Deal 2.0. Along with the entry into force of the amendment, the so-called tax relief for the middle class is eliminated.
It has been in force since the 1st of January 2022, and from the very beginning, it has not been met with enthusiasm. Its construction and methods of calculation were so complicated that the taxpayers called for an amendment to the regulations.
Simultaneously, Polish Deal 2.0 introduces a one-time solution that is based on a calculation of a hypothetical tax. If, after the calculations, it turns out that the taxpayer loses on the lower tax rate, the head of the tax office will repay the difference to him or her. This sum will constitute a difference between the tax due and the tax calculated with the application of the so-called middle-class tax relief. The amount to be returned will be treated in the same way as the overpayment. The tax authority will be obliged to inform the taxpayer about the amount to be returned within 21 days following the day of submitting a declaration. This means that the calculation of the possible amount to be returned and its actual return will not require any additional actions from the taxpayer.
Payers of contributions including relief in PIT advance payments for the period of time from January 2022 to June 2022 are exempt from the obligation to make corrections.
Polish Deal 2.0 – more changes to the health insurance contribution
Another change introduced by the Polish Deal 2.0 concerns the health insurance contribution. Until now, every taxpayer was devoid of the right to tax-deductible health insurance contribution. A decision was made to alter it, however, not with regard to persons who settle their taxes on the tax scale. These persons still qualify for a 9% health insurance contribution without the possibility to deduct it. In practice, it means that with a new tax scale, a 12% rate will actually amount to 21%.
A lump-sum tax, a flat tax or a fixed amount tax – these forms of taxation enable reporting a health insurance contribution as a tax-deductible expense.
- Taxpayers with a flat tax have the possibility to deduct the sum of the health insurance contribution from the costs of operating a business activity. The tax base may be reduced by the amount of paid contributions, however, such deduction is limited to the sum of 8700 PLN per year.
- Taxpayers who pay a lump-sum tax may reduce the tax base by 50 % of the amount of the health insurance contributions paid (the maximum amount of tax reduction is 503.91 PLN). This means profit on a level of 60 PLN to 1028 PLN per year.
- Taxpayers who have chosen a fixed amount tax may reduce the tax base by 19% of the amount of paid health insurance contributions
Together with the amendment, there was a change in regulations that states that overpaid health insurance contributions will be returned to taxpayers only upon request. Currently, after submitting the annual settlement and its verification by the National Revenue Administration, the return is made ex officio. If the annual statement is not submitted, the overpayment of contributions is reserved for covering future liabilities.
Joint tax settlement with a child on the ground of Polish Deal 2.0
Within the amendment, the legislator also modifies tax reliefs for parents and caretakers, including single parents. On the basis of Polish Deal 2.0, single parents again have the possibility of joint settlement with a child. In the previous version of the regulations, there was a tax relief for parents in the amount of 1500 PLN.
There is also a pro-family allowance for an adult child who is under 25 and is still studying. Such a child cannot earn its own income or revenue in the amount that exceeds a specified limit. So far, the limit was 3089 PLN, excluding the family pension. Polish Deal 2.0 increases this limit to the sum corresponding to 12 x social pension in the amount that is applicable in December of a given year. Currently, the social pension amounts to 1338.44 PLN, which corresponds to the limit of 16061.28 PLN. It should be remembered that the social pension is valorized every year, therefore this limit will increase in the future years. The regulations concerning the limit also apply in the case of a joint tax settlement of single parents with an adult, studying child.
Polish Deal 2.0 – how it changes the monuments’ relief
The possibility of deducting expenses for the renovation of monuments had previously created much controversy and there were speculations about its elimination. All in all, the relief was just slightly modified and restricted by the Polish Deal 2.0. The expenses incurred from the 1st of January 2023 for the purchase of a registered, immovable monument will not constitute the basis for a reduction of taxable income.
The basis for tax reduction within this relief will be represented by the expenses:
- incurred in the tax year for contributions to the renovation fund of a housing community or housing cooperative established, in accordance with separate regulations, for an immovable monument entered in the register of monuments,
- incurred in the tax year for maintenance and renovation works or for construction works in the immovable monument entered in the register of monuments,
- for the paid acquisition of an immovable monument entered in the register of monuments or for shares in such a monument, provided that the taxpayer incurred expenditures referred to above for the purchase of the property.
It was also enabled to deduct expenses for maintenance and renovation works or construction works in the monument after their completion. The condition that must be met in order to obtain a possibility of the deduction is receiving a certificate issued by Provincial Monument Conservator.
Summary
Polish Deal 2.0 once again introduces changes that are intended to improve the tax system in Poland. However, one should consider what the consequences of implementing subsequent amendments within such a short period of time might be. They could turn the calculation of employee salaries, income tax or social security contributions into a real challenge.
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