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The Polish Deal: Revolutionary changes to the personal income tax | News Flash

January 17, 2022

The amendment to the income taxes introduced in 2022 is the largest package of tax changes in over 30 years. Apart from a number of clarifying regulations, the amendment revolutionarily changes the rules of individuals’ taxation deriving income from an employment relationship and from business activity. Apart from tax changes and the elimination of selected taxation forms, the legislator has drastically modified the method of calculating the health insurance premium and the rules of its deduction.

The above changes are only a small part of the amendment package, but even this part is a gigantic challenge requiring both the adaptation of internal accounting systems and a comprehensive rethinking of remuneration schemes tax efficiency.

Our free publication presents in a simple and accessible way the most important issues included in the indicated amendment, gathers in one place all the most important information about changes in PIT, which will allow entrepreneurs and investors to analyse and adapt to the new tax realities.

Download this article as a PDF or read more below

New rules for calculating the health insurance contribution and eliminating deduction possibility

From January 2022, as part of the Polish Deal, the possibility of deducting any part of the health insurance contribution from tax was eliminated (so far, the greater part of the health insurance premium paid was deductible from tax). However, the amount of the contribution will depend on the method of income tax settlement used by the taxpayer.

Employees healthcare insurance

Starting from 2022 taxpayers employed under an employment contract or performing work under a mandate contract will still be charged a 9% health insurance premium, which, however, will not be tax deductible from the amount of tax due.

However, for employees earning from PLN 5,701 to PLN 11,141 gross, the legislator provided for the so-called middle class relief, which is to eliminate the negative effects of nondeductible health insurance premium. It should be however noted that discussed middle class relief is not available for the mandate contracts.

Healthcare insurance of entrepreneurs

The health contribution of an individual running a business who settles income tax on general terms or a 19% flat tax will be correlated with his monthly income.

In the case of the tax scale, the contribution will be 9% of the basis of assessment, while entrepreneurs taxed with flat tax will pay 4.9% of the basis of assessment. The contribution is calculated on the basis of the income from business activity, i.e. the difference between the revenues and the costs, less the amount of social security contributions paid.

It should be underlined, that the legislator provided for the minimum basis for the calculation of health insurance, which is at least equal to the minimum salary applicable for a given year. Therefore, in 2022, the minimum basis for the health insurance contribution will be PLN 3010, and the minimum health insurance premium will be PLN 270.90.

If the taxpayer conducts several business activities, he will pay a health insurance premium on the sum of income from business activities.

The regulations introduced by the Polish Deal have additionally changed the date of payment of health insurance contributions by entrepreneurs to the 20th of a given month.

Current deadline until the 10th day of the month for entrepreneurs not employing employees would be very difficult to achieve, due to the need to calculate the income in order to determine the amount of the health insurance premium due

Alternatively, the Polish Deal introduces a simplified method of calculating the health premium, according to which the assessment base equal to the amount of revenue (costs not taken into account) earned in the previous calendar year less the amount of social security contributions paid in the previous calendar year. Therefore, such a contribution would not be paid on the basis of tax income and for its calculation it would not be possible to take into account the tax-deductible costs incurred.

For taxpayers running a business subject to the tax scale, the legislator provided for the so-called relief for the middle class, which is to eliminate the negative effects of the changes in health insurance calculation method.

Lump-sum taxation on recorded revenues

For the taxpayers applying lump-sum taxation of revenues there is special method of calculating the healthcare insurance contribution.

There are as a rule two factors which influence the contribution:

  • the amount of revenue (decrease by social security contribution if not treated as costs and not deducted from the amount of tax paid),
  • average salary.

Healthcare contribution for the taxpayers using lump-sum taxation of the revenues will be 9% of the basis which is:

  • For annual revenues up to the threshold of PLN 60,000 – 60% of average remuneration published by Statistical Office
  • For annual revenues exceeding PLN 60,000 and up to PLN 300,000 – 100% of average remuneration published by Statistical Office
  • For annual revenues exceeding PLN 300,00 – 180% of average remuneration published by Statistical Office.

Average remuneration mentioned above means average monthly remuneration in the business sector published by the Statistical Office for last quarter of preceding year.

Data for the fourth quarter of 2021 will probably be available in the second half of January 2022, and thus, it will be possible to calculate the value of the health insurance for entrepreneurs taxed with a lump sum. However, taking into account that in the third quarter of 2021, the average monthly remuneration announced by the Statistical Office, amounted to PLN 5,885.75, for an entrepreneur whose annual income does not exceed PLN 60,000, the premium will probably amount to approx. PLN 320. With annual income exceeding this amount, but less than PLN 300,000, a premium of approximately PLN 530 can be expected, and the lump-sum taxpayers earning the most will pay a monthly premium of around PLN 950.

When setting the income threshold, entrepreneurs will have two alternatives:

  • Calculate the amount of the health insurance contribution – the same for all months of the year, based on the value of revenues from the previous year,
  • Calculate the health insurance contribution on the basis of current income and monitor exceeding the limit values.

Considering that the health insurance premium will be calculated not only monthly, but also annually, regardless of the selected method, the entrepreneur will pay the same amount, the amounts of any underpayment / overpayment will be settled (within one month from the date of submitting the tax return), it will be possible to apply for a refund of the overpayment amount on an electronic application to the Social Insurance Institution, submitted by 30 May.

The right to reimbursement of the amount constituting the difference between the sum of contributions paid for each month of the calendar year and the annual contribution will apply to entrepreneurs regardless of the form of PIT settlement (according to the tax scale, flat tax, according to the 5% PIT rate appropriate for IP Box or according to a lump sum on recorded revenues).

Taxation in the form of a tax card

Changes in the payment of health insurance will also affect entrepreneurs who apply the form of a tax card. For these taxpayers, the legislator provided for a health insurance contribution of 9% of the minimum wage.

In 2022, the minimum wage will be PLN 3,010. Thus, entrepreneurs will pay a health insurance premium of PLN 270.90 per month on the tax card.

Compulsory health insurance contribution for board members and proxies

The Polish Deal has also introduced a compulsory health insurance contribution of 9% without the possibility of tax deduction for members of the management board or proxies who receive remuneration on the basis of performing a given function. Therefore, persons appointed to perform functions under the appointment, who receive remuneration for this, will be subject to compulsory health insurance starting from 2022. Until now, such persons were not covered by either compulsory social insurance or compulsory health insurance.

The basis for calculating the health insurance contribution will be the amount corresponding to the amount of remuneration for performing the function. Registration for insurance, collection and payment of health insurance contributions will be made by the payer of the remuneration (remitter).

Middle class relief

The allowance for the middle class is intended to compensate for the abolition of the possibility of deducting health insurance from tax. It will apply to persons employed under a contract of employment (also benefiting from 50% of tax deductible costs) and individuals running a business, but only to those who pay taxes according to the tax scale.

The possibility of applying the relief will be subject to the amount of annual earnings, ranging between PLN 68,411.99 and PLN 133,692.01.

The allowance will not be available to:

  • Entrepreneurs taxed with 19% flat tax,
  • Taxpayers taxed with a lump sum on recorded revenues,
  • Persons performing activities in person (including mandate),
  • Persons who pay taxes in the form of a tax card, retirement and disability pensioners.

The basis for calculating the amount of the allowance is the total income / gross amount obtained from:

  • Employment relationship
  • Business relationship
  • Cooperative employment relationship
  • Homework
  • Revenues from non-agricultural economic activities (less the costs of conducting this activity, excluding the costs of social security contributions).

The sum of the taxpayer’s revenues deciding on the right to take advantage of the middle-class tax relief will therefore not include revenues from other sources, such as: for example: activities performed in person (e.g. contracts of mandate and specific work), pensions, annuities, etc.

The mechanism of this relief consists of reducing the tax base by the amount calculated according to the statutory formulas:

  • For gross revenues from PLN 68,412 to PLN 102,588: (sum of gross revenues x 6.68% – PLN 4,566) ÷ 0.17 = amount of the allowance
  • For gross revenues, they are from PLN 102 588 to PLN 133 692: (sum of gross revenues x (-7.35%) + PLN 9,829) ÷ 0.17 = amount of the allowance
  • For gross revenues lower than PLN 68,412 and higher than PLN 133,692, the relief will not apply.

In the case of persons employed under an employment contract, the amount of the relief will be deducted by the tax remitter i.e. the employer. The relief may not be taken into account by the employer only if the employee submits an application for income not to be deducted by the amount of the relief.

This tax preference is available also for joint reconciliation of the marriage.

Below please find sample estimation of the net salary and middle class allowance applicable from 2022.

Monthly Gross Salary Net Salary in 2021 Net Salary in 2022 Middle Class Relief Difference 2022 vs 2021
5000 3613 3660 0 47
6000 4319 4319 1433 0
8000 5730 5730 10864 0
10000 6937 6937 5935 0
11000 7502 7502 747 0
12000 8067 8114 0 47
14000 9277 9133 0 -144

Elimination of the tax card

According to the regulations of the Polish Deal, from January 1, 2022, it will not be possible to choose taxation in the form of a tax card. This method of income tax settlement will be possible only for taxpayers who used this form of taxation in 2021, with some limitations. After resignation from the tax card, it will not be possible to return to this form of taxation.

Additionally, along with the Polish Deal, new restrictions on the use of the tax card are introduced, which means that some entrepreneurs, despite being taxed in this form in 2021, will be deprived of this possibility. This applies, for example, to doctors and veterinarians performing their activities for:

  • legal persons,
  • organizational units without legal personality,
  • natural persons for the purposes of their business activity.

Changes in lump sum rates on recorded revenues

The amending act contains changes that reduce the lump-sum rates on recorded revenues for certain industries. Particular attention was paid to the IT and medical industries.

The change from 15% to 12% lump sum on recorded revenues concerns the provision of broadly understood IT services, i.e.:

  • Development and publishing services:
    • computer game packages (PKWiU ex, excluding online publishing of computer games
    • system software packages (PKWiU 58.29.1)
    • application software packages (PKWiU 58.29.2)
    • computer software downloaded from the Internet (PKWiU ex 58.29.3), excluding online software downloads
  • Services related to consultancy in the field of computer hardware (PKWiU
  • Software-related services (PKWiU ex 62.01.1)
  • Services included in the grouping “Originals of computer software” (PKWiU 62.01.2)
  • Services related to software consultancy (PKWiU ex 62.02) and software installation
  • (PKWiU ex
  • Services related to network and IT systems management (PKWiU 62.03.1).

The reduction of the flat rate from 17% to 14% applies to taxpayers providing services:

  • In the field of healthcare (PKWiU division 86)
  • Architectural and engineering
  • Technical testing and analysis services (PKWiU division 71)
  • In the field of specialized design (PKWiU 74.1).

In the case of entrepreneurs who incur very limited tax-deductible costs, the choice of a lump sum on recorded revenues may certainly be a form of taxation worth considering.

Modification of preferential settlement for single parents

Starting from 2022, the favourable income tax settlement for single parents that had been in force so far is abolished. Instead of the current option of settling a single parent with a child, as a result of which the tax of a single parent is calculated as twice the tax calculated on half of the income, from 2022 there will be a tax relief of PLN 1,500, the same for all single parents.

The new relief will apply to the following taxpayers:

  • Maid, bachelor, widow, widower, divorcee
  • A person who was separated within the meaning of legal regulations
  • A person who is married to a person deprived of parental rights or serving a sentence of imprisonment
  • Under the condition of raising alone children which are
    • minors
    • adults receiving care allowance (supplement) or a social pension
    • adult learners up to the age of 25.

It should be noted that adult children in education must additionally meet the following conditions:

  • Do not receive taxable income on general principles, income from capital gains or income exempt from youth relief and relief for people returning from abroad – in the total amount exceeding PLN 3,089, with the exception of a family pension
  • They do not pay a linear 19% PIT tax or a lump sum on recorded income (except for a lump sum for rent, sublease, lease, sublease or other contracts of a similar nature)
  • Are not taxed under the terms of the Tonnage Tax Act or the Act on the activation of the shipbuilding industry and complementary industries.

It should be emphasized that only one of the parents (or legal guardians) will be eligible for the deduction

The use of the allowance will be excluded for people who:

  • Bring up at least one child together with the other parent or legal guardian, or
  • Have applied for joint settlement with their spouse.

Modification of the rules of joint settlement of spouses

The Polish Deal also introduces changes in the field of joint taxation of spouses. The spouses will also have the right to submit an application for joint taxation of income in the year of marriage, provided that the marriage and joint property will last until the end of the tax year.

Joint filing will also be possible for a taxpayer who was married during the tax year and his spouse died during the tax year (or after the end of the tax year but before filing a tax return for that year).

New PIT exemptions for seniors and large families

The amending act also introduces a number of new personal income tax exemptions, including:

  • Parents of at least four children
  • Professionally active seniors who, despite reaching the retirement age (60 years for women and 65 years for men), will not receive a retirement pension, survivor’s pension or a uniform or judge’s salary.

For the above-mentioned groups of taxpayers, the deduction from income will be PLN 85,528, not including PLN 30,000 of the amount of tax-free income for taxpayers settling on general principles.

Thus, the amount of the exemption may amount to PLN 115,528, and in the case of parents of at least four children paying jointly – even PLN 231,056.

The described income tax exemption dedicated to parents / seniors will cover the following revenues:

  • From a business relationship, employment relationship, homework and a cooperative employment relationship
  • From contracts of mandate referred to in Art. 13 point 8 of the PIT Act
  • Non-agricultural business activity taxed on general principles or with a flat tax at the rate of 5%. PIT appropriate for the IP Box or a lump sum on recorded revenues.

The amending act provides for the possibility of taking advantage of these exemptions already during the year, at the stage of collecting income tax advances by the payer, provided that the tax remitter receives a relevant declaration of meeting the conditions for applying the exemption.

Introducing the PIT tax relief for people returning from abroad

Another relief provided for in Polish Deal will take the form of a tax exemption for people who have not previously had a place of residence in Poland for tax purposes and decide to transfer their tax residence to Poland. This preference is therefore aimed not only at encouraging Polish citizens to return to the country, but also foreigners to choose Poland as the country of tax residence.

Under the new tax relief, taxpayers who transfer their place of residence to Poland will be able to take advantage of the income tax exemption in the maximum amount of PLN 85,528 per year over the next four tax years, counting from the year of transferring their place of residence or from the next year. Additionally, if they settle accounts according to general rules, they will be entitled to a tax-free amount of PLN 30,000 per year.

It should be emphasized that the legislator provided for a number of formal conditions necessary to take advantage of the above-mentioned relief, dependent on previous tax residence.

The exemption from the return relief will apply to revenues:

  • from a business relationship, employment relationship, homework and a cooperative employment relationship
  • from contracts of mandate
  • from non-agricultural economic activity, taxed on general principles, with a flat tax at the rate of 5%. PIT appropriate for the IP Box or a lump sum on recorded revenues.

Lump sum for using a company car for private purposes

From the beginning of 2022, the rules for determining the amount that will be added to the employee’s income by the employer for using a company car for private purposes will change. From the new year, the amount of the added lump sum will not depend on the engine capacity.

The key parameter will be engine power.

The monetary value of the gratuitous benefit to which the employee is entitled to use the company car for private purposes will be determined in the amount of:

  • PLN 250 per month – for cars:
    • with an engine power of up to 60 kW
    • electric
    • hydrogen powered
  • PLN 400 per month – for other cars.

As a result of these changes, the number of employees for whom the binding monthly rate of declared income will be PLN 400, not PLN 250, will most likely increase.

Sale of a car after buying it out of leasing

The sale of a car bought out of lease and transferred to the private property of the entrepreneur will result in tax liability if 6 years do not elapse between the first day of the month following the month in which the component is withdrawn from operation and the date of its sale for consideration. So far, the sale of such a car after 6 months from the date of its purchase (to private property) did not result in a tax obligation.

It should be emphasized that these rules will apply to assets purchased after December 31, 2021.

Individual lease taxed only with a lump sum

The Polish Deal provides that, from 2023, the only form of taxation of private rental will be a lump sum on recorded revenues. This change was originally to apply from January 1, 2022 but was postponed for an additional year.

Private lease includes rental, sublet, lease, sublet and other similar agreements. Private lease does not apply to business lease.

In the light of the applicable regulations, income from the rental of private assets may be taxed on general terms or, alternatively – with a lump sum on recorded income.

In the case of lump-sum taxation on recorded income, the basis for calculating the tax is income, which means that it is not possible to reduce the tax base by any costs. The lump-sum rate depends on the amount of annual revenues achieved:

  • 8.5% for annual revenues of up to PLN 100,000,
  • 12.5% for revenues in excess of PLN 100,000.

The inability to choose the form of private rental taxation from 2023 means that regardless of the amount of expenditure on real estate, e.g. renovation expenses or the purchase of equipment, it will not be possible to settle them in tax deductible costs.

Moreover, from 2022 it will not be possible to include in the tax-deductible costs depreciation write-offs on buildings and residential premises used in business activities, except for those acquired or constructed by the end of 2021, for which depreciation will be possible until the end of 2022.

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