Employee Income - What Does It Include?

Service-Tax

Employers who provide various types of benefits for their employees are required to calculate and collect income tax advances on this account. It should be borne in mind that employee benefits are not limited to payment of remuneration for work. Therefore, apart from remuneration, what constitutes employee income? We explain below.

Employee income from the use of a company car for private purposes

If an employee uses a company car for private purposes without incurring any costs, he or she receives a free benefit. This benefit represents taxable income for the employee.

Pursuant to Art. 12 sec. 2a-2c of the Personal Income Tax Act, the amount of this income is determined by means of a lump sum. The income of an employee who uses a company car for private purposes is:

  • PLN 250 per month - if a car with a capacity of up to 1600 cm3 is used

  • PLN 400 per month - if a car with a capacity of more than 1600 cm3 is used

It should also be borne in mind that the value of the employee's income on this account also depends on the number of days on which the car will be used for private purposes. If the company car is used for private purposes only for a part of the month, the value of the benefit for each day is set at 1/30 of the amount of income depending on the engine capacity.

Example 1.

In November, the employer made a company car available to its employee free of charge, which was used for private purposes for a period of 15 days. The engine capacity of the vehicle is 2000 cm3.

If the employee uses the car for private purposes, he will earn income from the employment relationship in the amount of:

PLN 400: 30 days = PLN 13.33 - the value of the revenue for 1 day of using the car

PLN 13.33 * 15 days = PLN 199.95 - total revenue for November from the use of a company car for private purposes.

As can be seen from the above, an employee who uses a company car for private purposes earns a flat-rate income. Then the employer collects an advance income tax payment on the income determined in this way. The value of the employee's income earned on this account should be added to other income earned by the employee in a given month and calculated, collected and paid an advance on income tax from the total value.

Employee income from financing the employees of MultiSport cards

The MultiSport card allows you to use many different benefits and sports and recreational facilities. These cards constitute an incentive system for employees. Employers purchase MultiSport cards and give them or sell them to employees. Their value financed by the employer constitutes income for the employee from the employment relationship. However, depending on how the purchase is financed, the income tax consequences of handing over cards differ.

The employer usually covers the purchase of MultiSport cards from his own funds or from the funds of the Company Social Benefits Fund.

Employee income on this account may, under certain conditions, benefit from income tax exemption. It is possible when:

  • the value of income from the MultiSport card received and other benefits in kind and in cash received in this respect by the employee in a given tax year does not exceed PLN 380, and

  • this benefit was fully covered from the funds of the Company Social Benefits Fund or the funds of trade unions.

However, in a situation where the purchase of MultiSport cards is financed from the employer's current assets, it is necessary to charge income tax on this benefit. Then the employer adds this income to the other components of the remuneration for work and collects an advance income tax on this account.

Employee income from medical packages for employees and their family members

As an incentive system, employers more and more often provide their employees with medical packages that entitle them to use specific medical services.

According to many issued individual interpretations, the costs incurred by the employer to cover the costs of medical packages for employees (also in the part covering additional benefits beyond the basic scope of occupational medicine and health prophylaxis) can be classified as tax deductible costs.

Such a position was taken, among others, by Director of the Tax Chamber in Poznań in the individual ruling of 12 March 2012, ref. ILPB3 / 423-601 / 11-2 / JG and the Director of the Tax Chamber in Katowice in the individual ruling of 13 December 2010, ref. IBPBI / 2 / 423- 1160/10 / PC. At the same time, regardless of whether the employee uses the medical services provided as part of the package or not, he has no influence on the recognition of this type of expenses as tax costs by the employer.

Typically, a medical care contract concluded between a given medical facility and the employer is structured in such a way that the facility undertakes to be ready to provide services, and the employer declares that in return for this readiness, it will pay a specific amount on this account every month. The employer is obliged to pay the agreed amount regardless of whether the employee will benefit from medical care or not.

The medical package financed by the employer constitutes employee income from free benefits. This income is generated by the employee upon receipt of the right to use these services. Again, it does not matter whether the employee actually uses the services offered.

In conclusion, there are many ways to motivate employees to work. However, most of these types of benefits will generate income for the employee on which to accrue and pay tax.