Linear income tax - everything you need to know

Service-Tax

Linear income tax is one of the possible methods of settling income tax by natural persons running a business. The rules for its application are described in the Personal Income Tax Act (PIT) of July 26, 1991.

Linear income tax

Linear income tax is calculated on the basis of earned income - that is, revenue minus costs incurred.The value of individual elements is determined on the basis of the tax revenue and expense ledger or full accounting ledgers kept by the entrepreneur. The tax rate in this case is 19%.

It is the fixed tax rate, regardless of the amount of income obtained, that is the basic difference between the linear and progressive tax calculation method. In the latter form, the taxpayer may pay fees of 18%, but only until his income does not exceed the tax threshold of PLN 85,528. In such a situation, for the surplus obtained over the indicated amount, the rate of 32% should be applied.

At the same time, however, by opting for a flat income tax, the entrepreneur will not be able to take advantage of certain discounts, e.g. for the Internet or children, or to jointly settle accounts with the spouse. There is also no tax-free amount here.

Annual tax return and flat income tax

The taxpayer is obliged to submit the PIT 36L declaration (by April 30 of the following tax year). If, in addition to running a business, the entrepreneur also works full-time, it will be necessary to submit an additional, separate PIT-37 declaration.

If the taxpayer decides to settle on a flat-rate basis, he is obliged to report this fact to the head of the competent tax office by January 20 of the new tax year. Otherwise, the tax office will calculate the income in the same way as in the previous tax year. If the taxpayer wants to opt out of this form of taxation, the same deadlines apply. On the other hand, entrepreneurs who start their business should report the decision on the method of accounting no later than the day before the commencement of business. In the event of delaying until the first income is obtained, it will be necessary to adopt general rules for accounting for income tax.

When taxed with flat tax, it is necessary to settle accounts regardless of the amount of income. The advance tax payment must be made for the first month in which the income was obtained. It can be done in three ways - monthly, quarterly (small taxpayers and taxpayers starting their business) or in a simplified way (it cannot be used by taxpayers who have started their business).

Linear income tax - for whom?

The linear income tax is intended for entrepreneurs conducting non-agricultural business activity, including sole proprietorships. This form is also addressed to natural persons who are partners of the company or companies without legal personality. However, there are situations in which the application of a flat tax is not possible. And yes, this rule applies to people who start a business or quit their full-time job and chose self-employment. If in a given tax year they perform the same duties for the current employer as part of their activities, they cannot use this method of accounting in the first year of operation - this option will be available only in the following year.

The advantages of the flat tax is an attractive and simple form, advantageous primarily for companies that, due to high income, qualify for the second threshold, i.e. 32%. In theory, it would seem that this is a good solution for people with income exceeding PLN 85,528, although in practice it is worth considering switching to a flat tax only when income exceeds PLN 100,000.