From 2022, the conditions for personal income tax deductions are changing in connection with the Polski Ład and Niskie Podatki programmes. You can deduct deductible expenses and apply for tax credits for a number of reasons, including on a monthly basis or on your annual PIT return. Below are the conditions, list of tax deductions and examples.

The procedure for determining the tax base for personal income on the example of employees in 2022 (from 07/01/2022) includes a reduction (deductions) by:

1) social insurance contributions,

2) expenses associated with the receipt of income,

3) minimum tax-free income,

4) ‘zero’ tax for certain categories of citizens,

5) tax deductions for income and

6) tax deductions for tax.

Social insurance contributions paid by an employee include contributions to pension insurance - 9.76%, disability insurance - 1.50%, sickness insurance - 2.45% and health insurance - 9%.

Income-related expenses (koszty uzyskania przychodów) differ depending on whether the work is performed by a local employee or the employee travels to the place of work (Table 1). To account for these expenses within the established limits, they do not need to be documented. In 2022, such expenses can only be deducted for one place of work and only for an employment contract (lump sum for service relationship, employment relationship, cooperative employment relationship and homework) From 2023, expenses can be applied with the submission of the PIT-2 form up to 3 jobs - the total amount of PLN 300 will be divided into deductions of PLN 150 (2 jobs) or deductions of PLN 100 (3 jobs). The deductions will also apply to an employment contract (umowy o pracę), an assignment contract (umowy zlecenie) and a contract for the performance of specific tasks (umowy o dzieło).

Table 1. Income-related and tax-deductible expenses in connection with labour relations in 2022

* Provided that the employee is not paid severance pay and travel expenses are not reimbursed. If a severance pay is received, the expenses are accepted as for a local employee.

Example. A taxpayer under an labour contract with a place of work in the city of residence with a gross salary of PLN 5,000 per month will have a tax base (taxable amount) of PLN 4,064.5 minus insurance premiums and income-related expenses: 5,000 - 685.5 - 250 = PLN 4,064.5.

The minimum tax-free income in 2022 is PLN 30,000 or PLN 2,500 per month (gross income). If the income is within these limits, then you can apply to the employer with a statement about non-payment of advance payments for income tax during the year. Income above PLN 30,000 per year will be taxed at the first threshold of 12% (Table 2). The rate of 17% was applied from 01 January to 30 June 2022. Due to the change in the rate from July 01, 2022, a rate of 12% will be applied to income for 2022.

Table 2. Income tax rates in 2022

Example. Income in 2022 is PLN 132,000 or PLN 11,000 gross per month. Tax reduction amount: PLN 3,600.

Tax amount in the 1st threshold of the tax scale: 120,000 * 12% - 3,600 = PLN 10,800.

The amount of tax in the 2nd threshold of the tax scale: 12,000 * 32% = PLN 3,840.

Total tax amount: PLN 10,800 + 3,840 = PLN 14,640.

Example. If the minimum wage in 2022 is PLN 3,010 gross per month, it is exempt from tax. Since the minimum non-taxable income refers to the taxable base, and not to income.

The annual minimum wage in 2022 is PLN 3,010 x 12 = PLN 36,120.

Social insurance contributions for an employee 13.71% * PLN 36,120 = PLN 4,952.05.

Tax base (local employee) PLN 36,120 - PLN 4,952.05 - PLN 3,000 = 28,167.95.

Thus, the tax base is less than the non-taxable amount.

«Zero» tax for certain categories of citizens provides for exemption from income tax for:

• young people under the age of 26,
• families with children 4+,
• returning to the country and
• working pensioners aged 60+ / 65+.

The income limit for these categories of citizens, which is not subject to income tax, is PLN 85,528 in 2022. After using this limit, you can apply for exemption from paying income tax advances in the amount of a non-taxable amount of PLN 30,000.

Example. A taxpayer aged 25 years with a gross monthly salary of PLN 8,549.08 will be exempted from paying income tax, taking into account the payment of social insurance contributions in the amount of PLN 1,132.36 and the deduction of income-related expenses in the amount of PLN 250 per month.

Income tax deductions reduce the taxable base by the amount of income used for social insurance contributions, replenishment of a pension account (IKZE, konto emerytalne), thermal modernization, rehabilitation, Internet, donations, innovations, purchase of a payment terminal and others (Table 3).

Table 3. Grounds and amounts of deductions for personal income tax in 2022

Table 3. Grounds and amounts of deductions for personal income tax in 2022 (continuation)

Table 3. Grounds and amounts of deductions for personal income tax in 2022 (continuation)

Table 3. Grounds and amounts of deductions for personal income tax in 2022 (continuation)

(1) donations are cumulative with other donations to determine the tax deduction limit, up to a maximum of 6% of income,

(2) donations are not cumulative with other donations to determine the tax deduction limit,

(3) the amount of the deduction cannot exceed 10% of operating income in the tax year,

(4) the amount of the deduction cannot be higher than the income for the previous tax period,

(5) the deduction applies to the income of employees whose working time devoted to research and development is at least 50% of the total working time,

(6) cannot exceed the amount of income received by the taxpayer in the tax year from business activities.

Example. In 2022, a taxpayer with an annual income of PLN 72,000 gross is entitled to a deduction of documented expenses for the Internet in the amount of PLN 500 (not more than PLN 760), expenses for thermo-modernization of the house in the amount of PLN 10,000 (not more than PLN 53,000) and donations in the amount of PLN 1,000 for vocational education (no more than 6% of income). After deducting social insurance contributions, expenses related to income generation at the place of residence and work, and the above deductions, the tax base for income tax is PLN 37,628.8.

72,000 - 9,871.2 - 3,000 - 500 - 20,000 - 1,000 = PLN 37,628.8.

Other expenses that may be deductible from the taxable base relate to expenses related to copyright (Table 4).

Table 4. Tax deductions for income from copyright-related activities

* If the actual expenses incurred are greater and can be documented, they can be included in the annual PIT return (without the above restrictions).

Example. The taxpayer's income related to copyright in 2022 amounted to PLN 72,000. The taxpayer has the right to pay PLN 36,000 (50%) as expenses in the PIT-36(37) declaration or more in case of documented expenses.

Tax deductions for tax include:

1) On children, which depends on the number of children: on the first child PLN 1,112.04 per year, on the second child PLN 1,112.04 per year, on the third child PLN 2,000.04 per year, on the fourth and each subsequent child PLN 2,700.00 per year. The deduction is made on the annual tax return PIT-36, 37 (PIT/O) in an amount not exceeding the paid insurance contributions for social and health insurance in 2022 (excluding such contributions on the returns PIT-28, 36L, 16A, 19A).

It is possible to return unused benefits that the taxpayer could not deduct, for example, due to low income (salary). In this case, the difference between the amount of the deduction due in connection with the benefit and the amount of the deduction indicated in the tax return (not more than the amount of contributions to social and medical insurance) can be returned to the taxpayer (the spouse of the taxpayer) in the PIT-36(37) declaration minus the previously withheld / shown deductions (in PIT-36L, 28 / PIT-16A, 19A).

Example. The taxpayer has income from an employment contract (PIT-37) and his spouse has income in the form of unified (lump-sum) tax (ryczałt od przychodów ewidencjonowanych) (PIT-28). They have two common children. The taxpayer's contributions to social and health insurance for the year amounted to PLN 2,000.00, the tax benefit is PLN 2,224.08. To take full advantage of this deduction, the taxpayer files a joint tax settlement with the spouse. The taxpayer's spouse paid PLN 500 health insurance premiums in 2022, of which PLN 200 was taken into account in the PIT-28 declaration. Then the taxpayer has the right to deduct PLN 300 (up to the limit of PLN 224.08) in the PIT-37 declaration.

Additional terms of the tax deductions on the children may be found here.

2) Health insurance contributions in 2022 can reduce income / revenue / tax up to the established limit, depending on the form of taxation of an individual entrepreneur:

• single tax rate (podatek liniowej) - up to PLN 8,700,
• lump sum on registered income (ryczałt od przychodów ewidenchiowanych) - up to 50% of paid health insurance contributions,
• tax card - 19% of the amount of paid health insurance contributions.

More about paying health insurance contributions in 2022.

3) On income received from work abroad (ulga abolicyjną), a taxpayer - a tax resident with unlimited tax liability, submits a PIT-36 (36L, 28) declaration with the PIT/ZG appendix, calculating the amount of tax payable on such income.

Since income received abroad can be taxed both in Poland and in the country where it is received, one of the following approaches is applied to avoid double taxation:

• A progressive deduction, where income earned abroad is taxed only abroad and is excluded from the tax base in Poland. However, the amount of income earned abroad affects the tax rate applicable in the country of residence. This approach is used, for example, in double tax treaties between Poland and other countries such as Germany, France or the Czech Republic. In this case, the tax return is not filed. However, if in addition to income from abroad, there is also income in Poland, taxable in accordance with the tax scale, or the taxpayer wants to have a common tax settlement with the spouse, then the declaration is filed and the deduction with progression is applied.

An example of tax calculation by deduction with progression.

or

• Proportional deduction, which is possible only within the limits of tax proportional to income received in a foreign country. This means that income earned abroad is taxed in Poland. In this case, the tax paid abroad is deducted from the tax payable in Poland. The tax return is filed regardless of whether other incomes that are taxed in Poland in accordance with the tax scale have been received in addition to income from abroad. This approach can be applied when Poland has concluded a double taxation agreement with the country from which the income is received, and in the absence of such an agreement, for example, with the Netherlands, the USA.

An example of calculating the tax on a proportional deduction.

To calculate the relief, you need to compare the amount of tax calculated in accordance with the proportional deduction and with the progressive deduction.

In the given example, this is PLN 3,429 and PLN 3,430, that is, there is no difference between these approaches for these income amounts.

The deduction limit is PLN 1,360.