Tax-free amount and the new Polish Deal

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The goal of any business is to make a profit. At the same time, entrepreneurs are looking for solutions allowing for tax optimization so as to pay the lowest taxes possible. The stable financial situation of the company is of great importance - ensuring its safe operation and further development. One of the tools that an entrepreneur can use is the choice of the most advantageous form of taxation. Let's check what the issue of "tax-free amount and the new Polish Deal" says on this subject.

When is the tax-free amount available?

From the forms of taxation, such as a tax card, lump sum on recorded income, tax scale and flat tax, the tax-free amount is available only for one of them. This is a tax scale. This form of taxation consists in the presence of three tax thresholds - 17% and 32%, and in the case of earning income above PLN 1,000,000, the excess over this limit is subject to a 4% tax rate under the so-called tax rate. a solidarity levy. The amount of the tax rate depends on the amount of income obtained, i.e. income less the costs of obtaining it. In 2021, the tax-free amount is PLN 8,000.

Example 1.

Mrs. Emilia runs a hairdressing salon. In 2021, it generated revenues of PLN 50,000. However, the costs incurred are the amount of PLN 45,000. Will Ms Emilia show taxable income in the annual tax return for 2021 and will she have to pay tax?

If the amount of income is higher than the value of the costs incurred, taxable income will be generated in the amount of PLN 5,000 (50,000 - 45,000). Due to the fact that the income has not exceeded the tax-free amount, Ms. Emilia will not pay income tax for 2021. Moreover, if during the year she made advance payments for income tax, they will be shown as an overpayment in the PIT-36 annual tax return and will be returned to Ms Emilia ex officio. The New Polish Deal also increases the limit of the 1st tax threshold up to PLN 120,000.

Tax-free amount and the new Polish Deal

The announced tax changes to be introduced in accordance with the draft of the new Polish Deal will result in increasing the tax-free amount more than threefold. The New Polish Order will increase the tax-free amount to PLN 30,000.

Example 2.

Mr. Aleksander runs an IT company. In 2021, it achieved an income of PLN 10,000. Will the new tax-free amount introduced by the new Polish Deal bring tax benefits to Mr. Aleksander?

In 2021, the tax-free amount is PLN 8,000. In simple terms, it means that Mr. Aleksander earned an income exceeding this amount by PLN 2,000, so he will be obliged to pay the tax. The issue of "the new tax-free amount and the new Polish Deal" is a change that would allow Mr. Aleksander to avoid paying the tax, because under the new rules he would not exceed the tax-free amount.

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Who will benefit from the new tax-free amount?

Employees on the minimum wage will benefit the most from increasing the tax-free allowance. In 2021, the minimum wage is PLN 2,800. Taking into account the increase in the tax-free amount to PLN 30,000, a significant value of the generated income will not be taxed.

Example 3.

Mr. Wiktor works under an employment contract at XYZ and receives the minimum wage. What benefits can it count on after the entry into force of the new Polish Deal?

Taking into account the minimum gross salary in 2021, i.e. PLN 2,800, assuming that Mr. Wiktor worked 12 months, he earned an income of PLN 33,600 (PLN 2,800 * 12 months).

With the current tax-free amount, Mr. Wiktor has to settle with the tax office on the surplus earned over PLN 8,000, ie the tax will amount to PLN 4,352 [(33,600 - 8,000) * 17%]. The new tax-free amount will significantly reduce this value, because the tax on the surplus over PLN 30,000 will be PLN 612 [(33,600 - 30,000) * 17%].

* In the example, ZUS contributions and tax deductible costs have been omitted. In the justification to the draft act amending the act on personal income tax and amending some other acts, which introduces an increase in the tax-free amount, we can read that: "The introduction of a higher amount from the tax will be of particular importance for people earning up to PLN 2,500 a month, because these people will be fully exempt from personal income tax".

How will the regulations on the amount reducing the tax change?

Currently, the income tax advances do not include the tax-free amount, only the tax-reducing amount. It is a fixed value and amounts to PLN 525.12. The final settlement of this amount in the context of the tax-free amount takes place in the annual tax return. The amount reducing the tax is included in the calculation of the income tax advance only in the first tax threshold, i.e. using the 17% rate. The draft introducing an increase in the tax-free amount simultaneously eliminates the tax-reducing amount of PLN 525.12, which was included in the calculation of income tax advances. Currently, the draft act introducing an increase in the tax-free amount does not clearly indicate whether the amount reducing the tax will be recognized in advance payments for tax during the year in the full amount, i.e. PLN 5,100 (in the case of entrepreneurs who earn income in the 1st tax threshold). Increasing the tax exempt amount to PLN 30,000 causes a simultaneous increase in the tax-reducing amount to PLN 5,100 per year. The amount of the tax-reducing amount is due to the fact that it is 17% of the tax-free amount, i.e. 30,000 * 17%. The monthly tax reduction amount is PLN 425. As a consequence, the average monthly profit of a person working under an employment contract is approximately PLN 380.

 

Current regulations

new Polish Deal

Tax-free amount

PLN 8,000

PLN 30,000

Tax reducing amount (monthly)

PLN 43.76

PLN 425

Profit for the taxpayer

PLN 381.24 (425 - 43.76)

This means that taxpayers whose income does not exceed the amount of PLN 30,000 will be exempt from tax, while those with income exceeding the surplus of PLN 30,000 will pay tax in the amount of 17% until the first tax threshold is exceeded.

Example 4.

Mr. Łukasz runs a design office and during the month he earned an income of PLN 10,000. What benefit will the new Polish Deal bring for Mr. Łukasz?

Obtaining an income of PLN 10,000 in the current wording of the regulations, Mr. Łukasz would pay tax in the amount of PLN 1,174.88.

Calculations:

income - PLN 10,000

tax reducing amount - PLN 525.12

tax - 10,000 * 0.17 = 1,700 PLN

tax after the decreasing amount - 1700 - 525.12 PLN = 1174.88 PLN.

After the changes introduced by the new Polish Deal came into force, Mr. Łukasz would pay a tax of PLN 1,275.

Calculations:

income - PLN 10,000

tax reducing amount - PLN 425

tax - 10,000 * 0.17 = 1,700 PLN

tax after taking into account the decreasing amount - PLN 1700 - PLN 425 = PLN 1275.

Therefore, when answering the question of what benefits for taxpayers the issue of "tax-free amount and the new Polish Order", it should be noted that an increase in the tax-free amount will translate into lower taxes. However, these changes do not apply to every entrepreneur or employee. The tax-free amount occurs only in the case of taxation with the tax scale. Entrepreneurs who have chosen, for example, a flat tax, lump sum or tax card, will not therefore benefit from this change. It is therefore worth analyzing the change in the form of taxation in the new year. For this purpose, the CEIDG-1 update should be submitted no later than on the 20th day of the month following the month in which the first revenue was generated in a given year. Assuming that the changes to the regulations will not enter into force until 2022, entrepreneurs have time to complete the necessary formalities.