Deduction of social contributions in the annual tax return - how is it done?

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The deduction of social contributions in the annual tax return is the entrepreneur's right. Thanks to the deduction of ZUS contributions, the taxpayer may reduce income by social contributions (if not included in tax costs), as well as reduce the tax by health contributions. Let's check how correctly the deduction of social contributions is carried out in the annual tax return!

Deduction of social contributions in the annual tax return - Polish contributions

The taxpayer has the right to deduct social contributions from the tax base (income / revenue). Social contributions that the taxpayer paid during the tax year to the Social Insurance Institution (the so-called "Polish contributions") are deductible:

  • for own insurance - retirement, disability, sickness and accident insurance;

  • for insurance of cooperating persons - retirement, disability, sickness and accident insurance;

  • for insurance from the taxpayer's (e.g. employee's) funds, which he withheld as a payer.

On the other hand, the taxpayer cannot deduct the "Polish" social contributions in the annual tax return:

  • whose assessment basis is income (revenue) exempt from tax under the provisions of the Personal Income Tax Act, the assessment basis of which is income from which tax collection has been waived pursuant to the provisions of the Tax Ordinance;

  • included in tax deductible costs;

  • deducted from income under the Lump-sum Income Tax Act on certain income earned by natural persons, returned to the taxpayer in any form.

The amount of actually incurred expenditure (contributions paid) is deductible and not the contributions due. Evidence by which the taxpayer will be able to confirm the payment of ZUS contributions may be any document that allows you to certify that the expenditure has been incurred. For example, it can be a proof of payment, transfer, confirmation of a transfer from a bank statement or a certificate from the Social Insurance Institution about the amount of contributions paid (e.g. a form generated from PUE).

Example 1.

In the tax year 2020, the taxpayer paid social contributions in the amount of PLN 4,800. On the other hand, the social contributions due for 2020 amounted to PLN 5,245. Due to the fact that the deduction in the annual tax return is the social contributions paid and not due, the taxpayer will be able to deduct contributions in the amount of PLN 4,800.

Example 2.

In 2020, Mr.Michał paid social contributions in full and overdue social contributions for 2015. Social contributions for 2015 were paid with a 4-year arrears, and yet they can be deducted together with the paid contributions for 2020 in the annual tax return.

KIS brochure - Deduction of Social Security Contributions: Useful Information

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KIS brochure - deduction of social security contributions.pdf Description: KIS brochure - deduction of social security contributions

Deduction of social contributions in the annual tax return - foreign contributions

The taxpayer may deduct in the annual tax return the social contributions for the compulsory insurance of the taxpayer and the cooperating person paid to the foreign establishment in accordance with the provisions on compulsory social insurance in force in a country other than the Republic of Poland of the European Union, the European Economic Area or the Swiss Confederation (so-called "foreign contributions") . However, they cannot be social contributions:

  • whose basis of assessment is income (revenue) exempt from tax on the basis of double taxation avoidance agreements to which the Republic of Poland is a party;

  • included in tax deductible costs;

  • returned to the taxpayer in any form;

  • paid in a country where a double taxation avoidance agreement or other ratified international agreement to which the Republic of Poland is a party does not contain a legal basis for the Polish tax authority to request tax information from the tax authority of that country.

In addition, the taxpayer cannot deduct social contributions that he previously deducted in the tax:

  • on income (income) or on tax in a Member State of the European Union other than the Republic of Poland or in another country belonging to the European Economic Area or in the Swiss Confederation, on income under the Act on flat-rate income tax on certain revenues earned by natural persons;

  • on tax under the Personal Income Tax Act (as health insurance contributions).

It should be noted that the deduction of "foreign contributions" depends on the method used to avoid double taxation for income obtained abroad. Therefore, if the taxpayer obtained in another country income for which it applies:

  • the method of proportional deduction - then it has the right to deduct contributions paid in accordance with the regulations in force in a given country;

  • exclusion method with progression - then there is no right to deduct foreign social contributions.

Example 3.

The taxpayer paid social contributions abroad in the amount of PLN 500 in 2020 and social contributions in Poland in the amount of PLN 2,300. Social contributions paid abroad were recognized by the taxpayer directly in tax costs, therefore, in the annual tax return, he will be able to deduct social contributions in the amount of PLN 2,300.

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How is the deduction of social contributions in the annual tax return?

After determining which contributions are deductible, the taxpayer must take into account that the legislator has imposed a certain limitation on the deduction of social contributions, namely - they cannot be deducted in an amount higher than the amount of income (or income - in the case of lump sum taxation).

Annual tax return

Social contributions are deductible

Item in the testimony

PIT-36
(version 27)

paid by the taxpayer and collected by the payer

item 188 or 189 (if he acts as a spouse) or 190 (foreign contributions) or 191 (foreign contributions if he acts as a spouse)

PIT-36L
(version 16)

only paid by the taxpayer

item 33 (Polish contributions) or item34 (foreign contributions)

PIT-28
(version 22)

paid by the taxpayer and collected by the payer

item 73 (Polish contributions) or item 74 (foreign contributions)

It should be noted that the deduction of social contributions in one of the declarations makes it impossible to deduct them in another. However, if one of them is included in part of the contributions, and the other - in the same declaration - is not included, then the remaining part may be deducted in another declaration.

Example 4.

Mr Marcin conducts business activity subject to general taxation and is a partner in a civil law partnership in which he benefits from flat rate taxation. Social contributions paid in 2020 for business activity amounted to PLN 3,200. He does not pay social contributions from a civil law partnership. Mr. Marcin made a loss of PLN 20,000 from a sole proprietorship, while in the company he earned an income of PLN 50,000. As social contributions cannot be deducted as part of a sole proprietorship in connection with the loss suffered, Mr. Marcin can deduct them as part of the settlement of income from a civil partnership.

Deduction of social contributions in the annual tax return in the wFirma.pl system

In the wFirma.pl system, social contributions deducted in the annual tax return are calculated automatically. For this to happen, ZUS DRA declarations should be settled on actual dates and then income tax advances should be generated.

To settle the ZUS DRA declaration, go to the tab: START »ZUS» SETTLEMENT DECLARATIONS, select the ZUS DRA declaration and use the option SETTLEMENT. In the window that will appear, you should indicate that the ZUS contributions were paid on the actual date.

Then, in order for the social contributions to be automatically settled in the annual tax return, it is necessary to generate income tax advances. To generate them, go to the START tab »TAXES» INCOME TAX »CALCULATE TAX. Then, ZUS contributions will be included in the advance payment.

When generating an annual tax return using the following scheme: START »TAXES» ANNUAL DECLARATIONS »ADD A DECLARATION, after selecting one of the appropriate forms:

  • Annual income tax declaration on general terms (PIT-36);

  • Annual flat income tax declaration (PIT-36L);

  • Annual flat-rate income tax declaration (PIT-28)

and selecting the year and purpose of the annual tax return - submission or correction - a window will appear in which ZUS contributions will be listed.

Then, in the window for the annual tax return - if the social contributions are higher than the value of the income from which they can be deducted - the system will automatically take into account only the value that can be deducted.