Reimbursement of social and health insurance contributions and PIT
People running a business are required to pay social and health insurance contributions. However, as practice shows, when paying contributions, entrepreneurs often make mistakes that result in the return of funds from ZUS. Such a return is not tax neutral and requires appropriate settlements.
According to Art. 24 sec. 6a of the Act on the Social Insurance System, unduly paid contributions are credited ex officio towards overdue and current contributions. If the payer has no contribution arrears, the overpayment shall be counted towards future contributions, unless the payer submits an application for reimbursement of insurance contributions. Only if the overpayment does not exceed 5% of the lowest salary, ZUS will not refund the overpaid contributions, even if the payer applies for their reimbursement, and will be credited ex officio towards overdue, current or future contributions.
Unduly paid contributions expire after 5 years - this means that the payer may not claim a refund of unduly paid contributions if 5 years have passed from the date of their payment.
The payer may submit an application for the reimbursement of overpaid insurance premiums at any time after becoming aware that the premiums have been unduly paid. However, in a situation where ZUS notifies the payer about the amount of unduly paid contributions, the contribution payer has 7 days to submit an application for reimbursement of the overpayment from the date on which he received the notification from ZUS. However, the plant is not obliged to inform the payer about the overpayment.
Income tax and contributions
Pursuant to Art. 26 sec. 1 point 2 lit. and the PIT Act, the basis for calculating the tax is the income determined after deducting contributions specified in the Act on the social insurance system, paid in the tax year directly for the taxpayer's own retirement, disability, sickness and accident insurance. These contributions can also be classified as tax deductible costs.
Paid contributions to the Labor Fund are also recognized as tax deductible costs.
However, pursuant to Art. 27b paragraph. 1 of the PIT Act, income tax is first reduced by the amount of the health insurance premium paid in the tax year directly by the taxpayer, in accordance with the provisions on health care services financed from public funds - the reduction does not apply to contributions whose calculation basis is income (revenue) tax-free pursuant to Art. 21, 52, 52a and 52c, and contributions, the assessment basis of which is income from which, pursuant to the provisions of the Tax Code, tax collection was abandoned. The amount of the health insurance contribution by which the tax is reduced may not exceed 7.75% of the basis for the assessment of this contribution.
How to settle the reimbursement of insurance premiums?
All types of income are subject to taxation with personal income tax, with the exception of those mentioned in art. 21, 52, 52a and 52c and the income from which the tax collection was abandoned pursuant to the provisions of the Tax Code.
The concept of business income has been defined in Art. 14 sec. 1 of the PIT Act. This provision stipulates that the amounts due, even if they have not been actually received, are considered as income from non-agricultural economic activity, after excluding the value of the returned goods, granted discounts and discounts.
Income also includes money and cash values received or made available to the taxpayer in the calendar year as well as the value of received benefits in kind and other gratuitous benefits.
In the case of social security contributions, the entrepreneur has two options for their settlement, depending on the previous settlement:
if the taxpayer has included the paid contributions as tax deductible costs, the recovered contributions will constitute income from business activity. This revenue should be recognized according to the date when the funds were actually received;
in a situation where the taxpayer deducted overpaid contributions from income, in accordance with art. 20 (1) of the PIT Act, these funds should be classified as other income. The taxpayer should take them into account when generating the annual declaration for the year in which he received a refund of paid benefits.
The amount of contributions to the Labor Fund paid and classified as tax deductible costs related to the conducted business activity constitutes income from this activity. This income is subject to disclosure in the tax book of revenues and expenses on the day of its obtaining and settlement on general principles with other revenues from running a business.
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On the other hand, the reimbursed health insurance premiums previously paid and deducted should be added to the tax shown in the tax return submitted for the tax year in which these circumstances occurred.
This position is confirmed by the tax authorities, an example of which is the individual interpretation of the Head of the First Tax Office in Lublin of December 7, 2006, ref. No. P-3-415-28 / 06, where we can read:
(...) reimbursement of expenses (in this case, the reimbursement of expenses incurred by the Lord on contributions to social insurance and the Labor Fund) is included in the general disposition of the quoted provision of ar. 14 sec. 2 point 2 of the Act.Therefore, the reimbursement of contributions for social insurance and the Labor Fund, previously included by you as tax deductible costs, constitutes income from non-agricultural economic activity. (...)
Based on Article. 45 sec. 3a point 1 of the Personal Income Tax Act, in the event of receiving a refund of previously paid and deducted health insurance contributions in a tax return, (...) submitted for the tax year in which these circumstances occurred, you are obliged to add to the tax, calculated in accordance with Art. 27, the amounts previously deducted.
To sum up, contributions for social insurance and the Labor Fund returned in 2006 constitute income from business activity and are settled on the day the income is earned with other income from this activity. On the other hand, contributions for health insurance returned in 2006 are added to the tax calculated in the tax return filed for 2006 (...).