Resignation from simplified income tax advances

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Due to the persistent coronavirus epidemic, various forms of support for entrepreneurs are introduced to mitigate its effects. The help concerns, among others periodic cancellation of obligations towards the Social Insurance Institution, introduction of cash benefits and tools supporting the reduction of tax liabilities towards the tax office. One of the forms of support is the earlier resignation from simplified advances for income tax. How is this opt-out made, and when could it be beneficial? Answer in the article!

Who can use simplified income tax withholding?

Simplified income tax advances are a fixed amount of income tax paid monthly to the competent tax office, regardless of the amount of income earned in a given month.

The amount of the simplified advance is determined on the basis of the amount of income obtained in the annual tax return submitted for the tax year preceding the year in which the taxpayer wants to use simplified advance payments, or in the annual tax return preceding that year, if in the last tax return the taxpayer:

  • has not obtained income from non-agricultural economic activity or

  • achieved income in the amount not exceeding the amount being the quotient of the amount reducing the tax and the lowest tax rate specified in the tax scale.

The amount of the simplified advance payment for income tax is 1/12 of the tax amount determined on the income from non-agricultural activities less the health insurance contributions paid in a given year (7.75% of the assessment base).

Example 1.

In 2021, Ms Patrycja wants to take advantage of the possibility of paying simplified advances on income tax. In the annual tax return filed last year, i.e. in the annual tax return for 2019, she incurred a loss on non-agricultural economic activity. In 2018, however, she paid income tax in the amount of PLN 68,000. Can Ms Patrycja pay simplified income tax advances and if so, in what amount?

Patrycja can pay simplified advance income tax payments due to the fact that in 2018 she achieved income. The monthly advance payment will be PLN 5,667 (PLN 68,000 / 12).

The simplified advance payment may be made only monthly, up to the 20th day of the month for the previous month.

Simplified tax advances may be paid by persons who earn income from taxable non-agricultural business activity:

  • on general rules,

  • flat tax,

who in the annual tax return submitted in the previous year or two years earlier achieved income from their activity.

On the other hand, taxpayers cannot take advantage of simplified income tax advances:

  • settling on the basis of a lump sum,

  • who started their activity during the year,

  • who started their business last year.

If a taxpayer decides to pay advances in a simplified form, they should apply them consistently throughout the tax year. Until the end of 2018, the selection or resignation from simplified advance payments took place in the form of a notification to the tax office. From 2019, the selected form of advance payment should be used throughout the tax year, and after the end of the tax year, information about the method used is included in the annual tax return.

Who and when can opt out of simplified advances in 2021?

Due to the epidemic situation in the country, taxpayers who have suffered the negative economic effects of the coronavirus have the option of resigning from paying simplified income tax advances for the months from March to December 2020.

This possibility was introduced by the amendment to the PIT Act, where under Art. 52r, a small taxpayer may resign from simplified advances during the year and pay them in accordance with the selected form of taxation.

A small taxpayer for PIT purposes is a taxpayer whose sales revenue obtained in the previous year (including the amount of VAT due in the case of an active VAT taxpayer) did not exceed EUR 2,000,000 converted into PLN. In 2021, the limit is PLN 9,031,000.

After resignation from the simplification, the advance income tax should still be paid on a monthly basis. The taxpayer then determines its amount in accordance with the selected form of taxation, where it takes into account all revenues, costs and due advances and social security contributions paid from the beginning of the tax year.

The amount of advances in accordance with Art. 44 sec. 3 of the PIT Act should be determined according to the following rules:

  • the obligation to pay the advance payment arises from the month in which the income exceeds the amount that is the quotient of the amount reducing the tax specified in the tax scale and the lowest tax rate specified in the tax scale;

  • the advance payment for this month is a tax calculated on general principles or with the use of a flat tax;

  • the advance payment for subsequent months is the difference between the tax due on the income earned from the beginning of the year and the sum of advance payments for the preceding months.

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Example 2.

Monika is a small taxpayer and from January 2020 to March 2020 she made simplified advances in the amount of PLN 1,000. Due to the decrease in revenue related to the coronavirus epidemic, it has resigned from paying simplified advances from April 2020. Since then, it has been paying advances for income tax on general terms. The tax due in April, calculated on the basis of income cumulatively from the beginning of the year, amounted to PLN 3,500. What tax should Monika pay for April?

Ms Monika should reduce the tax due by simplified advances paid from the beginning of the tax year, so that the advance on income tax for April will be PLN 500.

PLN 3,500 - (3 × PLN 1,000) = PLN 500

The taxpayer notifies the tax office about the resignation from the simplified form of paying advances only in the annual tax return submitted after the end of the tax year, i.e. in the tax return for 2020 submitted by April 30, 2021.

Resignation from simplified income tax advances - who can it be beneficial for?

Simplified income tax withholding may be a beneficial solution for entrepreneurs who earn more or less the same level of income and do not want to re-establish the amount of tax due each month.

In the era of the COVID-19 epidemic, the economic situation of many companies has deteriorated significantly, which often means that the amount of income obtained has not remained at the same level as before. For entrepreneurs whose income has significantly decreased in the recent period, the payment of the tax in a fixed amount may turn out to be very unfavorable, as they will be obliged to pay the tax in a higher amount than it would have been if the advance on income tax had been determined in accordance with the selected form of taxation. .