19 November 2021

The Polish Deal – the middle-class tax relief

After several months of work in the Sejm and Senate committee, the provisions contained in the Polish Deal Act (including middle-class tax relief) will finally enter into force on January 1st, 2022.

During the work in the Senate, several dozen rectifications were proposed, and even vacatio legis, an amendment postponing the entry into force of the provisions until the beginning of 2023, was passed. However, ultimately the Government was in favor of keeping the original date of publication of the law and entrusted it for the President’s signature.

The so-called middle-class tax relief is a new form of financial support for specific taxpayers, settled on an annual or monthly basis, obtained at the taxpayer’s request. The relief can be granted once – based on the total income for a given period from all sources (this is particularly important information when, for example, an employee is simultaneously employed under an employment contract and conducts business).

Middle-Class Tax Relief – who will qualify?

The rules for qualifying for the new tax relief are presented in the amendment’s content. Employees employed under an employment contract and entrepreneurs settling tax on general terms can apply for it. Therefore, the relief is not available for retirees and those employed under different contracts (like a specific task contract or commission).

The amendment to the law also introduces qualification limits for the relief. A given taxpayer is excluded from tax relief if:

• the sum of his gross annual income is lower than 68,441.99 PLN, and
• the sum of his gross annual income is higher than 133,692.01 PLN.

In terms of net income, entrepreneurs earning between 5,700 and 11,100 PLN per month will qualify for the relief.

Reasons for change

The new financial aid is a form of compensation addressed to Polish entrepreneurs due to other changes which will ultimately increase the costs of running a business. An example is the introduction of a minimum CIT, which will financially affect the vast majority of Polish entrepreneurs. 

Regardless, in the opinion of tax experts, the new relief is also an attempt to compensate for the simultaneously introduced lack of the possibility to deduct the health insurance contribution to which employees qualify from a certain level of income.

The formula for calculating the new tax relief

The amount of the allowance can be calculated using the formula included in the amendment to the Law. It takes into account the outcome of the sum of gross revenues (value “A”) and specific indicators:

• (A x 6.68% – 4,566 PLN) ÷ 0.17, for A of at least 68,412 PLN and not exceeding 102,588 PLN,
• (A x (-7.35%) + 9,829 PLN) ÷ 0.17, for A higher than 102,588 PLN and not exceeding 133,692 PLN.

Of course, it should be remembered that with the annual tax settlements, taxpayers will be able to include the relief in the declaration submitted in 2023 at the earliest.