When to apply the PIT exemption for young people

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On July 24, the act amending the act on income tax, family benefits and health care services financed from public funds was signed, which introduces PIT exemption for young people. However, only some of the employees will be able to take advantage of the new tax relief. What will the salary be calculated in this case? About it below.

Who can be exempt from paying tax?

In order to benefit from the exemption, it will be necessary to meet three main conditions imposed by the act. They concern age, type of employment and the amount of income earned. The discount will be available to people who:

  • are under 26 years old - part of 1993 born after August 1 will get the last chance to take advantage of the exemption. Importantly, the relief is valid until the date of birth, so income earned after this date will be automatically taxed,

  • are employed on the basis of an employment contract (also applies to homework and business relationship) and on the basis of a mandate contract,

  • achieved income in the amount not exceeding PLN 85,528.00 during the calendar year, while in 2019 the limit is proportional (5/12 of the annual limitation) and amounts to PLN 35,636.67. Average monthly earnings would have to remain at the level of PLN 7,127.

Due to the fact that the PIT exemption for young people is to apply from August 1, income earned after that date will not be taxed. It will be important in the case of postponed payments, as the advance payment should not be charged for July salaries paid in August.

Tax exemption not for contracts for specific work and young entrepreneurs

As mentioned earlier, only employees and contractors will benefit from the dismissal. The Act does not provide for a tax relief for young entrepreneurs or persons employed under a contract for specific work. Some experts have argued that excluding specific work contracts from the exemption is unconstitutional. However, the amendment intended to include performers in the privileged group was not adopted. The regulations are also detrimental to young entrepreneurs who struggle with competition and struggle to stay in the market. Running your own business is not easy, it is associated with high costs and the risk that the revenues will not compensate them. The changes may have a negative impact on the number of activities established by young people, as they will enjoy more benefits when employed full-time or signing an order than when they work on their own account.

How much will the employee earn and how much will the contractor earn?

The new regulations are the most favorable for students employed on the basis of a mandate contract. Such persons are not covered by the obligation to register for insurance, i.e. ZUS contributions are not deducted from their remuneration. Now also the contractor-student will not collect a PIT advance from them. This means that the gross amount will also be the amount to be withdrawn.

Exemption from contributing to contributions does not only depend on age, as it is in the case of tax exemptions. The status of a student is also important here.

Contractors who do not study and have been reported to ZUS (pay social contributions, including voluntary sickness contributions) will receive the same salary as those employed on a full-time basis.

Exemption from PIT for young people is financially less favorable for employees obligatorily covered by ZUS insurance. In 2019, they will earn about PLN 130 a month. However, it is worth remembering that an employment contract gives you many other privileges.

Below is a comparison of earnings on a mandate contract and an employment contract for the minimum wage.

 

Contract contract with the student

Contract of employment

Gross salary

PLN 2 250.00

PLN 2 250.00

Social contributions

0.00 PLN

PLN 308.48

Health contributions

0.00 PLN

174.74 PLN

To pay

PLN 2 250.00

PLN 1 766.78

Exemption from PIT for young people in 2019 is not implied!

From 2020, the tax relief will automatically apply to everyone who meets the conditions specified by the legislator. This year, in order for the PIT exemption for young people to be applied when calculating the remuneration, it is necessary to submit a document confirming the willingness to take advantage of this privilege with the employer or the client. It should be stated in it that the revenues obtained in 2019 will be fully exempt from taxation.

Which income will still be taxed?

It should be remembered that the PIT exemption for young people does not cover all income earned by the employee. Social security benefits paid by the employer will still remain taxable.

Showing exemption from PIT for young people in the annual tax return

Employees employed under the employment relationship and the contractor will not be obliged to prepare an annual tax return if the employing entity did not collect income tax advances from their remuneration. Importantly, the annual tax return for 2019 will show all revenues, except for the part exempt from PIT. In the following years, it will be necessary to prepare a tax return for taxable income in relation to exceeding the limit. The testimony will also be submitted by people who turn 26 in a given year, which will result in the loss of the right to benefit from the tax relief.