Incorrectly applied tax reduction amount by the employer

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The employer acting as the payer is obliged to collect income tax advances from the employee. The employee has the right to benefit from the tax reduction amount already at the stage of monthly advance payments. On the other hand, in this article we will consider what tax consequences are caused by an incorrectly applied tax reduction amount by the employer.

Rules for collecting an advance payment by the employer

In the case of persons performing tasks on the basis of an employment contract, tax advances are collected by the workplace from their remuneration. In such a situation, the employer acts as the payer, i.e. the entity obliged to calculate, collect and pay the advance to the account of the competent tax office on behalf of the taxpayer.

Advance payments are collected in accordance with the tax scale specified in Art. 27 of the PIT Act. The same provision introduces the tax-free amount, which in the basic variant is PLN 525.12. This tax-reducing amount can be included in the monthly advance payments made by the employer.

This is stated in Art. 32 sec. 3 of the PIT Act, where we can read that the advance payment is reduced by the amount representing 1/12 of the amount reducing the tax, if the employee submits a PIT-2 statement to the workplace before the first payment of remuneration in the tax year, in which he states that:

  1. does not receive an old-age or disability pension through the payer;

  2. does not receive income from membership in an agricultural production cooperative or other cooperative engaged in agricultural production;

  3. does not achieve income from which it is obliged to pay advances pursuant to art. 44 sec. 3;

  4. does not receive cash benefits paid from the Labor Fund or the Guaranteed Employee Benefits Fund;

  5. this establishment is appropriate to apply this reduction.

Submitting a PIT-2 statement by an employee obliges the employer to include the tax-free amount in the monthly advance payments for income tax. It is divided into the number of months of the year.

Situations when the employer does not apply the amount reducing the advance payment

The PIT Act also regulates such cases in which the employer does not apply the amount that reduces the tax.

It is about the provisions of Art. 32 sec. 1e of the PIT Act, where it was indicated that if the taxpayer submits a declaration to the payer that his income for a given year will exceed the amount constituting the upper limit of the first range of the scale (i.e. PLN 85,528), the payer shall collect the advance payments without reducing by the amount representing 1/12 of the amount reducing the tax from the month in which he received the declaration, or from the next month, if in the month in which he received the declaration, he was not able to collect the advance without such a reduction.

In addition, we can emphasize that under Art. 41a of the PIT Act, employers who are payers, at the taxpayer's request, calculate and collect income tax advances during the year, using instead of the lowest rate specified in the scale referred to in art. 27 sec. 1, a higher tax rate specified in this scale (ie 32% instead of 17%).

The question arises in what situations the above-mentioned the taxpayer's requests may be justified.

Well, if the employee does not submit the above-mentioned declarations, and the employer will initially collect advance payments at a lower tax rate and taking into account the exempt amount, then in the annual tax return the taxpayer will have a large amount to pay the tax. Therefore, it may turn out that a better solution is to agree to collect larger monthly advances during the year.

It follows from the above regulations that we are dealing with two statements:

  • on abandoning the application of the tax-reducing amount;

  • on collecting monthly advances at the rate of 32%;

Therefore, it is possible to consider what are the relations between the above-mentioned statements, and the already mentioned PIT-2.

The aforementioned provisions impose an obligation on the employer to collect and calculate the withholding tax at a higher tax rate, but they do not refer to the obligation of the payer to use an amount reducing the tax when calculating withholdings. As explained above, the condition for applying the tax-reducing amount is the submission of a declaration by the employee (PIT-2).

Therefore, in a situation where the employee's income with a given employer does not exceed the amount of PLN 85,528, the payer should apply the amount reducing the advance tax, despite the employee submitting an application for increasing the tax rate referred to in Art. 41a of the Personal Income Tax Act, assuming that the employee submitted a PIT-2 declaration before the first salary payment in the tax year.

Until the employee's income does not exceed PLN 85,528, it is possible to apply the amount reducing the advance tax if the employee submits the PIT-2 declaration on time. It is the employer's responsibility to apply the tax-reducing amount, even if the employee applies for a higher tax rate at the stage of collecting the advance payment.

Incorrectly applied tax reduction amount by the employer

Let us now imagine a situation where the employer incorrectly applies the tax-reducing amount after the employee has exceeded the income of PLN 85,528, or uses the tax-reducing amount despite the employee's declaration under Art. 32 sec. 1e of the PIT Act.

In such a situation, the employer is responsible for the tax not collected in the appropriate amount. Pursuant to Art. 30 of the Tax Ordinance, the payer is not liable only if the taxpayer is at fault, and this is not the case in the analyzed facts.

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As a result, it is the employer, as the entity bearing the tax liability, that is obliged to pay the incorrectly calculated advance payment.

If the employer has not collected income tax advances in the correct amounts, as well as has not paid the due advances to their tax authority, then such a situation will constitute a tax arrears for the payer, on which default interest is due.

It is irrelevant for the situation in question whether the employer will recover or not the amount paid by deducting from the employee's salary or withdrawing from this deduction. The recovery of funds from the employee does not affect the employer's liability, because due to the lack of fault on the part of the taxpayer, the payer will be the only entity responsible towards the tax office.

The recovery of the amount will be governed by the provisions of civil law, not tax law. However, while remaining in the field of taxes, it should be noted that the tax office will issue a decision on liability towards the employer and it will enforce the tax arrears from him. Such enforcement, in the absence of the employee's fault, will not be carried out against the taxpayer.

Additionally, it is necessary to mention fiscal penal liability that may be incurred by the employer. Well, pursuant to Art. 78 § 1 of the Commercial Companies Code, a payer who does not collect tax or charges it in an amount lower than the amount due is punishable by a fine of up to 720 daily rates or imprisonment for up to 2 years, or both of these penalties jointly.

Collection of advance payments by the payer in the correct amount is his statutory duty. In the event of an incorrect application by the employer of the amount reducing the advance tax, when there is no question of fault on the part of the employee, the tax and fiscal penal liability is borne by the payer.

Moving on to the summary of our article, it should be noted that in the event of an error on the part of the employer, he is responsible for incorrectly collected advance payments due to the incorrectly applied tax-reducing amount.