Polish Deal 2.0 – important changes from July 1st, 2022

On June 14th, 2022, the President of the Republic of Poland signed an amendment to the “law on personal income tax and certain other laws”. The amendment – colloquially known as the Polish Deal 2.0 – introduces many corrections to provisions of the first Polish Deal from January 2022.

Although the Polish Deal 2.0 enters into force on July 1st, 2022, keep in mind that some provisions will not become applicable until January 1st, 2023. In this article, we only present the changes that will take effect soon, from July this year.

Lower PIT rate – 12 percent from July 1st

Decreasing the lowest personal income tax threshold is the most important change proposed by the legislator in the Polish Deal 2.0. The shift concerns the first tax threshold (up to 120,000 PLN) and will affect employees, contractors, entrepreneurs, retirees, and pensioners.

Thus, the legislator lowered the rate by as much as 5 percentage points, compared to the previous value (17 percent). The change will naturally apply to a large number of people eligible for PIT, which should be considered a positive and beneficial transition from the taxpayers’ point of view. The tax-reducing amount will also be reduced accordingly.

Middle-class tax relief is canceled – what instead?

Taxation of personal income was the biggest problem of the first Polish Deal amendment. At the beginning of 2022, especially the middle-class relief was highly controversial. Its assumptions were unclear, and its benefits appeared to be debatable.

That is why the legislator has decided to abolish them after almost half a year of the provisions in force. What does the Polish Deal 2.0 propose in return?

According to the government, the simpler and more effective solution in the field of personal income taxation is to be the so-called hypothetical tax due in 2022. It will be calculated with the use of middle-class tax relief value and the tax scale, which was in force in the period from January 1st to June 30th, 2022.

Unfortunately, solutions from the amendment still won’t cover all possible situations. If the settlement according to the rules in force before July 1st, 2022 (using the middle-class tax relief) turns out to be financially more favorable for the taxpayer, the tax office will be obliged to pay the difference between the tax due and the tax calculated using the outdated method. The deadline is set to 21 days from the date of submitting PIT.

Health contribution – deduction is possible again, but only for entrepreneurs

It is worth remembering that mechanisms introduced by the first Polish Deal (such as the higher tax-free amount), were originally meant to compensate taxpayers for losses resulting from the regulations of the first Polish Deal. For example, the elimination of the possibility to deduct 7.75% of the tax base from the income tax (PIT).

Polish Deal 2.0, as a remedy to the previous Law, restores the possibility of deducting the health contribution, although it will only apply to selected groups of taxpayers. The following may count on the return to the possibility of deducting the health insurance contribution:

• entrepreneurs on flat tax – the deduction may not exceed 8,700 PLN per year (as a reduction of income)
• lump-sum payers – the possibility of reducing income by 50% of paid health contributions
• taxpayers using a tax card – tax reduction by 19% of contributions paid in the tax year

Therefore, the change does not apply to employees, contractors, and taxpayers subject to compulsory and voluntary health insurance contributions.

Also, the so-called cooperating persons (according to the definition: spouse, children, children of the other spouse, adopted children, parents, stepmother or stepfather of the entrepreneur who stay with him in the same household and help in running the business), can count on a reduction in the health insurance base – from 100% average monthly salary up to 75%.

Polish Deal 2.0 – regulations for parents and families

The Polish Deal 2.0 abolishes a 1,500 PLN tax relief available for single parents bringing up a child. Instead, it proposes a joint settlement with the child. The benefit is 1.5 of the tax-free amount – which equals 45,000 PLN. Thus, the regulations in force before January 2022 are restored.

Additionally, a single parent raising a child with disabilities can count on benefits resulting from the double free amount, i.e. 60,000 PLN.

Moreover, a concession for large 4+ families was introduced. The relief consists of exemption from tax on income that will not exceed 85,528 PLN per year. It includes persons who “in the tax year concerning at least four children, exercised parental authority, performed the function of a legal guardian if the child lived with them, or they have functioned as a foster family based on a court decision or an agreement concluded with the district governor”.

Polish Deal 2.0 – other changes to keep in mind

• The limit of earnings that a child can obtain without losing tax preferences from parents is increased from 3,089 PLN to 16,061.28 PLN.
• The catalog of a child’s income, which is not included in the parents’ income, is extended to include a survivor’s pension. The so-called minor’s (under 18 years old) income will thus be subject to a separate tax-free amount.
• Local government units will receive compensation consisting in increasing the development subsidy or supplementing the general subsidy.
• The act increases the amount of tax that can be transferred to a public benefit organization. Starting from July 1st, 2022, the NGO-s will be able to receive 1.5 percent of the tax.
• A unified, general deadline for submitting the annual PIT return is set to April 30th, regardless of the form of taxation.