THE ABOLITION OF THE MIDDLE-CLASS TAX RELIEF
Praised by some, but criticised by most due to the complexity of the calculations and the rules governing its application. The middle-class tax relief is being removed from the legislation. The complex algorithm adopted by the legislator was not well received by employees, employers and accountants, on whom the greatest burden of maintaining accurate records would have fallen. Another drawback of the solution was its limited scope of application, the extension of which also posed many difficulties for the legislator. The intention is to offset the abolition of this relief by reducing the tax rate in the so-called first bracket to 12%.
SINGLE PARENTS
We have finally seen the abolition of the ‘relief’ – which was unfair to many – limiting the tax deduction for single parents to PLN 1,500, a measure that proved to be misguided and would in fact result in a tangible loss for some eligible individuals due to the reduction in relief compared to the previously applicable rules.
The legislator has therefore decided to amend this provision by introducing a preferential tax mechanism based on calculating tax at double the rate applied to half of the income of a single parent, taking into account Article 7, whereby the sum of such income does not include income (revenue) taxed on a flat-rate basis under the rules set out in the PIT Act, if the parent or legal guardian is a single person, a widow, a widower, divorced, a person in respect of whom a separation has been ordered within the meaning of separate regulations, or a person whose spouse has been deprived of parental rights or is serving a custodial sentence, provided that such a person is a single parent raising children in the tax year:
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minors,
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adults who, in accordance with separate regulations, received a care allowance (supplement) or a social pension,
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adults up to the age of 25 who are studying at schools referred to in the provisions governing the education system or higher education, in force in the Republic of Poland and in another country.
RULES FOR ADDING THE INCOME OF MINOR CHILDREN
This corresponds to an amendment to Article 7 of the PIT Act, which adds pensions to the list of income. The aim is to include pensions under the preferential treatment of the tax-free allowance. Additionally, such a pension is not to be included in the basis for calculating the health insurance contribution.
Clarification of certain allowances
The amendment also introduces clarifying changes regarding, amongst other things:
- relief for young people (Article 21(1)(148) of the PIT Act),
- relief for returning residents (Section 21(1)(152) of the PIT Act),
- relief for 4+ families (Section 21(1)(153) of the PIT Act)
- tax relief for working seniors (Section 21(1)(154) of the PIT Act).
As part of the exemptions, the types of income covered have been extended to include maternity benefit, as referred to in the Act of 25 June 1999 on cash benefits from social insurance in the event of sickness and maternity.
“PAŁACYK+” RELIEF
Changes effective from 1 January 2023 include a clarification of deductions from the tax base, specifying that the relief will apply to expenses:
- incurred during the tax year for contributions to the renovation fund of a housing community or housing cooperative established, in accordance with separate regulations, for an immovable monument entered in the register of monuments or listed in the register of monuments;
- for conservation, restoration or construction works on an immovable monument entered in the register of monuments;
Frequently asked questions
Is the middle class tax relief being eliminated and what does this entail?
Yes, the middle class tax relief is being abolished due to its complicated algorithm and difficulties in its application. Instead, the legislator is reducing the tax rate in the first bracket to 12 percent.
What changes affect single parents raising children?
The elimination of the disadvantageous relief has been replaced with a preferential taxation mechanism. Tax is calculated as double the amount of tax on half of the income, which is intended to prevent losses for those entitled.
Is pension income included in income when calculating the tax-free amount?
Pensions have been added to income, which aims to include them in the preference of benefiting from the tax-free amount. This pension is not simultaneously included in the basis for calculating the health insurance contribution.
Which tax reliefs are subject to clarification in the new amendment?
The changes clarify the relief for young people, the return relief, the relief for families 4 plus, and the relief for working seniors. Exemptions have also been extended to include maternity benefits.
What expenses can be counted under the Pałacyk plus relief?
The relief covers expenses for contributions to the renovation fund of a community or cooperative for historic real estate. It is also possible to deduct costs of conservation work, restoration work, or construction work on such historic property.
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The practice includes ongoing advice on administrative and tax law. He has extensive experience in handling judicial, administrative, tax and judicial-administrative proceedings concerning both individual clients and business entities, including that gained through many years of providing services to local government units and other units of the public finance sector.
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