Free benefits for the employee and PIT

Service-Tax

It often happens that employers provide various types of benefits for free or against payment. Some of them generate income for the employee, others are exempt. Which free benefits for the employee should be included in the PIT settlement?

Income from the employment relationship is all kinds of payments and benefits, i.e. any form of financial gain (i.e. both pecuniary and non-pecuniary) originating from the employment relationship between the employee and the employer. Therefore, everything that the employee receives from his employer - unless it is specified in art. 21 sec. 1 of the Personal Income Tax Act, income exempt from tax or income from which tax collection has been abandoned pursuant to the provisions of the Tax Ordinance - is subject to taxation from the source of income referred to in art. 12 sec. 1 of the Personal Income Tax Act.

Thus, various types of pecuniary and non-pecuniary benefits received by employees constitute income from the employment relationship referred to in Art. 12 sec. 1 of the PIT Act.

Free employee benefits - value determination

The monetary value of benefits in kind due to employees on the basis of separate regulations is determined according to the average prices applied to other recipients - if the subject of the benefit are goods or services falling within the scope of the employer's activity. The monetary value of other free benefits is determined:

  • if the subject of the service are services falling within the scope of the economic activity of the service provider - according to the prices applied to other recipients,

  • if the subject of the benefits are purchased services - according to the purchase price,

  • if the subject of the services is the provision of the premises or building - according to the equivalent of the rent that would be payable in the event of concluding a lease agreement for this premises or building,

  • in other cases - on the basis of market prices used in the provision of services or the provision of items or rights of the same type and species, taking into account in particular their condition and degree of wear and the time and place of making available.

If the benefits are partially payable, the taxpayer's income is the difference between the value of these benefits, determined according to the above-mentioned rules, and the fee paid by the taxpayer.

In a situation where an employee obtains a partially paid benefit (e.g. in the form of a reduced payment for a service), income is generated in the amount equal to the difference between the price applied by the taxpayer to other recipients and the price that the employee would pay for the purchase. The value determined in this way should be included in the remuneration from the employment relationship and with the advance income tax deducted.

For many years, issues related to additional benefits for employees have caused interpretation disputes between taxpayers and tax authorities, which often end in court. We present the most common problems related to the settlement of various types of equivalents under tax law.

Value of the service and VAT

The monetary value of benefits in kind is determined according to the purchase prices. Therefore, the employee's income should include the gross amount, i.e. including VAT, because if the employee were to purchase them, he would have to pay the gross amount, not the net amount.

A similar position was presented by the Director of the Tax Chamber in Katowice in a letter of December 31, 2008, No. IBPB2 / 415-1671 / 08 / BD, where we can read:

(…) Thus, employees will benefit from a financial advantage, as they are not obliged to pay the full amount for a meal, but only 50%, while the other 50% will be covered by the applicant. Thanks to this, employees will have an increase in their assets, because another entity incurs a financial cost of 50%, and thus they do not have to reduce their assets. In a situation where an employee had to purchase a specific meal alone, he would be obliged to pay the price for which the catering service is sold, i.e. the gross price.

It follows from the above that the Company should include in the employee's income the gross value of the subsidy to the meal received by the employee as a gratuitous benefit (...).

Sale of goods at a preferential price to an employee

If the benefits are partially payable, the taxpayer's income is the difference between the value of these benefits, determined according to the above-mentioned rules, and the fee paid by the taxpayer.

As a consequence, selling the goods at a preferential price to the employee will result in earning income from the employment relationship.

In a situation where an employee receives a partially paid benefit (e.g. in the form of a reduced payment for goods), income is generated in the amount equal to the difference between the price applied by the taxpayer to other recipients and the price that the employee would pay for the purchase. The value determined in this way should be included in the remuneration from the employment relationship and with the advance income tax deducted.

This is also confirmed by the tax authorities. As we read in the letter of the Director of the Tax Chamber in Poznań in the interpretation of February 22, 2013, ILPB1 / 415-1139 / 12-2 / AMN:

(...) when making purchases in the Company's stores, the employee acts in a dual role, ie as an employee and as a customer (making purchases based on a civil law sales contract). It should be noted, however, that when making purchases, such a person remains in a business relationship with the entity where they are made. As a consequence, a gain from such an entity, even resulting from the implementation of a civil law contract, is granted due to the existing employment relationship. Therefore, the discounts granted to employees constitute for them taxable income from the employment relationship referred to in Art. 12 sec. 1 of the Personal Income Tax Act, as partially paid benefits. This income is generated when the discounts are used, i.e. purchases are made at prices that include the discount. (...).

Example 1.

The employer has a bicycle shop. He sold an employee a bicycle worth PLN 5,000 for PLN 1,000. In such a situation, the employee will receive income from free benefits in the amount of PLN 4,000.

A gift for a retired person

Expenses incurred to purchase a gift for a retiring employee are not listed in the catalog of tax exemptions. It is a form of additional remuneration for work. The value of the benefit received in kind should be added to other income from the employment relationship obtained by the employee in a given month and the total amount of income should be calculated, collected and transferred to the tax office with an advance tax.

This position is confirmed by the tax authorities, including Director of the Tax Chamber in Warsaw in the individual ruling of November 22, 2012, IPPB2 / 415-785 / 12-4 / AK:

(...) giving the retiring employees or those celebrating their anniversary gifts, even of small value, will constitute a free benefit for these people. The above will give rise to income taxable with income tax.Tax revenue will not arise only in the event of handing out a bouquet of flowers, because this type of activity is not the transfer of goods with a specific use value. Therefore, it cannot be assumed that it is income from free benefits within the meaning of the Act on personal income tax.

Income generated by the Applicant's employees is subject to taxation on general principles as income from the employment relationship. The calculated value of the benefits per employee should be added to the remuneration paid to the employee in a given month and from the total value to be calculated, collected and paid in advance for income tax in accordance with the rules provided for taxation of income from employment, in accordance with art. 31, 32 and 38 of the Personal Income Tax Act. (...).

It should be done differently when the employee has the status of a retired person. Then, the income on this account is exempt from taxation up to the amount not exceeding PLN 2,280 in the tax year (Article 21 (1) (38) of the PIT Act).