Progressive income tax - general principles, tax scale

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Taxpayers who decide to start a business must choose, among others. the way it is taxed. Among the many forms available, the most popular is progressive income tax. In the article, we indicate what it is characterized by and how it is calculated.

Progressive income tax - tax scale

Progressive income tax, otherwise known as a tax scale or tax on general principles, makes the tax rate dependent on the amount of income. Revenues obtained up to the exceeding of the tax threshold are taxed at the rate of 17%, and above this amount - 32%. When calculating the tax, you must take into account the tax-free amount. Only after it is exceeded, the taxpayer may be required to pay income tax advances.

Progressive income tax - monthly and quarterly advances

A taxpayer who has chosen income tax settled according to general rules is obliged to calculate the monthly or quarterly advance on his / her own. In the case of the monthly mode, it should be paid by the 20th of each month for the previous month, and for quarterly settlement - by the 20th of each month following the quarter for which it is paid. Advance payments for the last month or the last quarter of the tax year are paid by January 20 of the following year. Quarterly advance payments are intended for small taxpayers - ie entrepreneurs whose sales revenues together with VAT in the previous tax year did not exceed the equivalent of EUR 2,000,000 (converted into PLN) or who are starting a business. The conversion is made according to the average euro exchange rate announced by the National Bank of Poland on the first working day of October of the previous tax year. In 2021, this amount is PLN 9,031,000. It should be remembered that in accordance with the PIT Act - the starting taxpayer is a taxpayer who, in the year of commencement of this activity and in the period of 2 years, counting from the end of the year preceding the year of its commencement, did not conduct business activity independently or as a partner of a company without legal personality, and such activity was not carried out by the spouse of that person, if there was joint property between the spouses at that time.

If the quarterly method of paying the advance payment is selected, information about such selection is indicated in the annual tax return PIT-36, PIT-36L and PIT-28 submitted for the tax year in which the quarterly advance payment method was used.

The obligation to make an advance payment for taxation according to the general rules arises for the first time in the month in which the income from activity exceeds the tax-free amount and the tax value is greater than the deduction.

Personal income tax rates

Personal income tax rates when taxed according to the scale are in the calculation of advances:

  • up to PLN 85,528 - 17% minus the tax reduction amount PLN 525.12,
  • over PLN 85,528 - PLN 14,539.76 + 32% of the surplus over PLN 85,528

In advance payments for tax, a simplified version of the amount reducing the tax is adopted and the adjustment is made in the annual tax return.

Progressive income tax - a scheme for calculating the advance payment

Scheme for calculating the advance payment if the 1st tax threshold is not exceeded (PLN 85,528):

  1. income from the beginning of the year - costs of obtaining it = income
  2. income - loss from previous years (if any) - sum of paid social security contributions (provided that they have not been included in the KPiR) = taxable income
  3. tax base (income rounded to full zlotys)
  4. tax base * 17% - reducing amount PLN 525.12 = tax from the beginning of the year
  5. tax - the sum of health insurance contributions paid (7.75% of the base) = tax from the beginning of the year
  6. tax from the beginning of the year - advance payments made in previous months = advance payment for a given month or quarter
  7. the amount due to the tax office (advance payment for a given month or quarter rounded to full zlotys).

Scheme of calculating the advance payment after exceeding the 1st tax threshold:

  1. YTD revenue - YEAR cost = income

  2. income - loss from previous years - sum of paid social security contributions (unless they were included in costs in the KPiR) = tax calculation basis.

  3. the basis for calculating the tax (income) is rounded to full zlotys

  4. basis PLN 85,528 x 17%

surplus over PLN 85,528 x 32%

= tax from the beginning of the year

  1. tax - sum of deducted health insurance contributions (7.75% from the base) = tax calculated from the beginning of the year

  2. tax from the beginning of the year - advance payments made in previous months = advance payment for a given month / quarter.

  3. amount due to the tax office (advance payment for a given month or quarter rounded to full zlotys).

The difference between the first and the second tax calculation scheme is that the amount reducing the tax after exceeding the first tax threshold is not taken into account.

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Tax-free amount in 2021

After the end of the tax year, the taxpayer is obliged to submit a tax return informing about the amount of income earned - possibly loss - on the PIT-36 form, by April 30 of the following year. This declaration should include all earned income taxed according to the scale, including the employment relationship or retirement pension.

In the annual tax return, the amount reducing the tax is also adjusted, taking into account the actual final level of the income obtained. The amount of the tax reduction depends on the amount of income:

The tax base

(income)

Tax reducing amount

in 2021
not exceeding PLN 8,000 PLN 1360

from PLN 8,000 and not exceeding

the amount of PLN 13,000

PLN 1,360 reduced by the amount calculated according to the formula:

PLN 834 PLN 88 x (basis for calculating the tax - PLN 8,000) ÷ PLN 5,000

higher than PLN 13,000 and not exceeding

the amount of PLN 85,528

525 PLN 12 gr

higher than PLN 85,528 and not exceeding

the amount of PLN 127,000

PLN 525 12/12 reduced by the amount calculated according to the formula:

PLN 525 12 gr × (basis for calculating the tax - PLN 85,528) ÷ PLN 41,472

higher than PLN 127,000 absent

The discussed form of taxation makes it possible to settle accounts with the spouse or according to the rules provided for single parents. It is also possible to take advantage of discounts, e.g. for children, rehabilitation or people earning income abroad.