13 September 2022
Polish Deal 2.0 – what finally changes in PIT after July 1
In our last article, we described the assumptions of the tax changes contained in the draft act called the Polish Deal 2.0. The amendment was supposed to be a response to the dissatisfaction caused by the tax reform introduced by the Polish Order. Many people in the insurance industry, including agents, brokers and employees of insurance companies, felt the negative effects of the changes in their pockets.
Due to the fast pace of work on the Polish order 2.0, on June 14, the act was already signed by the President and most of the changes will enter into force on July 1, 2022.
In the article, we present the rules of taxation of wages and salaries from July, both in the case of employees working in the insurance industry and in the case of self-employed persons, including insurance agents.
More profitable for employees
We would like to remind you that the most important change concerning employees, introduced as part of the Polish Governance, was the exclusion of the possibility of deducting health insurance contributions from tax, which resulted in a significant increase in the amount of advance tax withholding from remuneration. This disadvantageous aspect was to be eliminated by the relief for the middle class. The application of the tax relief was very complicated and did not apply to everyone, e.g. people with higher earnings. After it turned out that, contrary to the announcements, the new regulations are not favorable, at the beginning of this year another mechanism was introduced, consisting in double calculation of the PIT advance, which was to additionally reward employees for unfavorable changes.
In the amendment, the legislator eliminates the relief for the middle class and the mechanism of double calculation of advances. Instead, the PIT rate applicable in the first tax threshold is reduced from 17% to 12%. The tax reduction is intended to eliminate both the elimination of the tax relief for the middle class and the inability to deduct the health insurance contribution from the tax.
There is a rule in tax law that changes introduced during the year cannot be unfavorable to the taxpayer. Therefore, the regulations provide for a solution that has been defined as a hypothetical tax. The system for PIT settlements provided by the Ministry is to calculate the amount of tax taking into account the rules applicable until July 1, 2022 (including the allowance for the middle class). So if, on an annual basis, settlement with the use of the middle class relief is more favorable for a specific employee, the annual settlement will be made taking into account the relief. Otherwise, the settlement will be made according to the rules applicable after July 1, 2022.
However, will the systems provided by the Ministry cope with this task?
The changes related to the reduction of the PIT rate will also apply to persons running a business, paying taxes according to the tax scale.
The amendment also restores tax preferences for single parents, which will result in the possibility for a single parent to benefit from the tax-free amount of PLN 60,000.
The solutions that were introduced at the beginning of the year, which were favorable to employees, will still apply, ie the increase of the tax-free amount to PLN 30,000 and the increase to PLN 120,000 of the tax threshold above which the higher tax rate will apply.
Changes for B2B
The final version of the act also includes solutions dedicated to people running a business, which we described in our previous article. These changes are important, among others. for insurance agents and OFWCA running a business.
The change concerns the possibility of including health insurance in tax settlements. In the case of entrepreneurs taxed on a linear basis (19%), the possibility of reducing the tax base (Note: it applies to the tax base, not the tax itself!) By the value of contributions paid for business activity or for cooperating persons up to the amount of PLN 8,700 in the tax year, and this value is be increased in the following years. In the case of taxpayers who have chosen lump-sum taxation on recorded income, the tax base may be reduced by 50% of the value of the health insurance premium paid for the business and contributions for cooperating persons.
The amendment introduces the possibility of changing the form of taxation for entrepreneurs taxed on a linear basis and with a lump sum, who will be able to choose only the settlement according to the scale.
Linear taxpayers can choose the scale in the annual tax return for 2022. Lump sums can either choose the taxation scale from July to December 2022 (in which case they must submit an appropriate declaration to the office by August 22), or they can settle for 2022 according to the tax scale in the tax return annual. The regulations do not provide for a change to a form of taxation other than the tax scale.
However, It should be remembered, that at the tax scale, there is still an uncollected health insurance contribution of 9% and a high tax after exceeding the tax threshold. Whether a change in the form of settlement on a tax scale will be beneficial in a given case depends on many aspects, including on the level of revenues, costs, or the possibility of preferential settlement with the spouse or using other preferences.
Polish Deal 2.0 and salaries
The adopted amendment is the first such large change in tax settlements made during the tax year. After the chaotic introduction of changes to payroll taxation in 2021 and ineffective attempts to fix them in the first half of this year, now everyone counts on stabilization.
The changes should be generally beneficial for both employees and entrepreneurs, i.e. the net salary after July 1 should be effectively higher than before, at the same time, in many cases, it will still not be a return to the situation that took place by the end of 2021.
It should be hoped that the second half of the year will not bring about further such significant changes in the field of taxation of wages, and the regulations will remain for a longer period, thanks to which it will be possible to estimate the amount of taxation and, if necessary, to plan the choice of the form of taxation.
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