Yes, middle class tax credit is applied automatically.
In order to opt out of the middle class discount, you must submit a non-relief application. It can be folded at any time.
Taking advantage of the allowance for the average cash register is beneficial for people who achieve income (from an employment relationship and / or JDG settled according to the tax scale) in the range of PLN 5,701 – 11 thousand. 141 (i.e. from PLN 68 thousand 412 to PLN 133 thousand 692 annually).
However, if the taxpayer, due to random events, ultimately does not achieve revenues of at least PLN 68,000 annually. PLN 412 or exceeds it, then he will have to return the obtained discount during the annual settlement. This may happen, for example in the event of job loss, long-term sick leave or maternity allowance, or in the event of an increase in remuneration, bonuses or other taxable benefits under the employment relationship. This will also be the case for people employed on two jobs, if each of the employers calculates the allowance during the year.
Also read: Middle class relief in practice. Sample calculations
It is also worth remembering that the amount of the allowance for the middle class is “flexible”, ie it is different for each value of “A” in the formula, i.e. the sum of revenues / income from activities settled according to the scale. The amount of the allowance settled by the employer in advance payments may be completely different than the amount of the allowance in the annual tax return. This is because the payer takes into account only the income obtained in a given month in a given workplace in the advance payments. With variable incomes, even if the taxpayer falls within the range of the relief, its amount will be different.
The difference will not be only if the income from work is the same each month.
Taking into account inflation and the time value of money, it can be said that it is never profitable to file an application for not applying the middle class tax relief, because the money received today is more valuable than in a dozen or so months, but then you have to take into account the risk of tax surcharge in the annual tax return . If someone does not want to deal with this problem and anticipates that the threshold for relief will be exceeded or will not be reached – he should submit an application.
It is also worth recalling that the relief calculated according to the formula is deducted from the tax base, not from the tax. The effect of the tax relief on the employee’s net income ranges from a few dozen groszy per month to approx. PLN 190 (for revenues of approx. PLN 8,500).
What if an employee earns between PLN 68,000 on a contract of employment? PLN 412 and PLN 133 thousand PLN 692, which means that he qualifies for the allowance for the middle class, but he also has other income under the mandate contract, contract for specific work, rental or business activity and his annual income exceeds PLN 133 thousand. PLN 692?
The allowance for the middle class applies to income from employment relationships and JDG that are progressively accounted for.
People who earn income from employment and other titles, e.g. mandate contracts / work / income from managerial contracts, remuneration of the management board on the basis of appointment, other sources (e.g. social security benefits such as sickness benefit or maternity benefit) / economic activity settled according to flat rate – they will not include these revenues in the relief formula, but achieving them is not an obstacle to applying the tax credit, as long as the income from work / JDG accounted for progressively falls within the range for the relief. These residual income should simply be disregarded when calculating the amount of the tax credit.
What about people who qualify for middle-class income relief but may get a bonus, an award or a so-called thirteen that will cause them to exceed the income limit?
The relief for the middle class applies to people with income in the range of PLN 5,701 – 11 thousand. PLN 141 (i.e. from PLN 68 thousand 412 to PLN 133 thousand 692 annually). However, if the taxpayer does not meet the above-mentioned range, e.g. as a result of receiving a bonus, prize, thirteen, etc., then he will lose the right to the relief and will have to pay additional tax on the relief applied during the annual settlement.
However, it is worth remembering that any bonus or award at the end of the year may change the amount of the middle class allowance calculated in advance by the employer, even if the threshold is not exceeded. This is due to the fact that the amount of the allowance is different for each different value of income from work.
Can the middle class relief be waived during the tax year when, for example, there is a risk of exceeding the upper income limit?
Yes, you can, by submitting a declaration of resignation from applying the discount. The employer (payer) must comply with it from the next month at the latest.
What if the salary is below the lower limit for middle class relief but is exceeded with bonuses and rewards?
This means that in the months when the employee’s income falls within the range entitling him to take advantage of the relief, it will be automatically calculated, and as a result, the tax base will be reduced. This does not have to mean, however, that the employee will also retain the right to this relief on an annual basis. If its total income does not reach the amount of PLN 68 thousand, PLN 412, the discount will not be available.
Therefore, to avoid any surprises in the annual settlement, it is very important to estimate your possible annual income and make a decision whether or not to use this relief on an ongoing basis during the year.
However, if the premium in the analyzed example amounts to PLN 30,000, PLN, it will not exceed the limit of 133 thousand. PLN 692, but the amount of the allowance for the middle class will change anyway. In this case, in the annual tax return there will be an additional payment – PLN 1125.
Does the taxpayer have to apply for the waiver of the middle class tax relief himself if he knows that he or she exceeds the upper income limit and would have to pay extra tax on the annual tax return?
Yes, otherwise the tax relief will be calculated automatically where the income meets the quota criteria and the tax is underpayment in the annual settlement.
Are any allowances for employees and entrepreneurs mutually exclusive and not applicable?
First of all, you should pay attention to the tax-free amount. In the case of progressively taxed activities, it is applied first. Then the employee should not submit the pit-2 form to the employer, so as not to incur the tax underpayment caused by the double settlement of the exempt amount (the amount of underpayment can now reach even PLN 5,100). The second risk is the middle class relief – both sources of income – employment relationship and activity taxed according to the scale are eligible for this arrangement. The amounts of income add up, so here too, if the limit is exceeded, there is a risk that the annual tax relief will have to be returned.
What about people who earn / earn less than 68,000 PLN 412 and will benefit from the middle class tax relief?
If the taxpayer does not fall within the range entitling to the relief, he will have to return the relief received during the annual settlement. This may be the case, for example, in the event of a job loss, long-term sick leave or maternity benefit, or in the event of an increase in salary, bonuses or other taxable benefits under the employment relationship.
That is, in the case of earning revenues below 68 thousand. PLN 412 and taking advantage of the middle class relief, the taxpayer will pay the tax on an annual basis, unless he has the opportunity to compensate this relief with other reliefs due to him, e.g. with a relief for children.
You can find more questions and answers here.
The answers to the questions were developed by:
Monika Smulewicz, Partner, Payroll and HR Outsourcing, Grant Thornton
Małgorzata Samborska, Partner, Tax Advisory, Grant Thornton
Agnieszka Wachowicz, Manager, Payroll and HR Outsourcing, Grant Thornton