[Poland] Polish Order 2.0 – 5 key changes in PIT

The amendments to the Polish Order, i.e. the so-called Polish Order 2.0, come into force on 1 July 2022. A significant part of the proposed changes relates to the PIT Act. What should you look out for and how to navigate the changes?

On 1 July 2022, the tax reform under the New Polish Order 2.0 will become a fact. The amendment will affect PIT settlements and tax preferences for parents and guardians. Entrepreneurs will once again have to adjust to the new rules of calculating advance payments for income tax. It is worth mentioning that only six months ago taxpayers faced a significant challenge – a new mechanism for extending the deadlines for collecting and paying advance payments of income tax, implemented first by the Ordinance of the Minister of Finance of 7 January 2022 and finally by the amendment to the Polish Order of 8 March 2022. What new challenges will employers face after 1 July 2022?

5 key solutions of Polish Order 2.0 from 1 July 2022

1. 12% PIT in the 1st tax threshold of a tax scale

The key change is the reduction of the basic PIT rate from 17% to 12%. Lower tax will be paid by taxpayers who settle according to a tax scale and fall within the 1st tax threshold (income up to PLN 120 000 annually). The reduction applies to sole entrepreneurs, employees, contractors, as well as retired persons and disability pensioners who meet the above criteria. At the same time, the tax-free amount of up to PLN 30 000, the 9% health contribution as well as the tax threshold II of PLN 120 000 will be maintained.

Learn more: Polish Order 2.0 – PIT reduction from 1 July 2022

2. New tax reducing amount

Another important change is the reduction of a tax reducing amount. Currently it is 5100 PLN annually, after 1 July the annual tax reducing amount amounts to 3600 PLN, which means a reduction of the calculated advance income tax payment by 300 PLN (previously it was 425 PLN monthly).

3. No middle class relief

1 July 2022 marks the end of the so-called middle class relief. The preference took effect on 1 January 2022. What is important is that contribution payers who include the middle class relief in PIT advances from January 2022 to June 2022 will not be required to make adjustments. The middle class relief will still be available after 1 July, (but only exceptionally – in an annual return) if its application proves more favourable to a taxpayer than the rules in force after 1 July 2022.

Learn more: Lower PIT and no middle class relief from July 2022

4. No obligation to calculate PIT advances twice

On 1 July 2022, the obligation to calculate advance payments for 2022 twice will be lifted to compare with the hypothetical tax calculated as in 2021. Moreover, the employer will not be held liable for incorrect collection of advance PIT payments caused by incorrect information provided by an employee (refers to incorrectly submitted PIT-2 declaration).

Learn more: Polish Order 2.0 – preferences for employees with multiple jobs

5. Joint taxation with a child and tax benefits for parents and guardians

Under the amended tax regulations, the legislator also introduces changes regarding the application of tax reliefs for parents and guardians, including single parents. Single parents will once again settle their tax returns together with a child (the previous version of the Polish Order regulations provided for an allowance of PLN 1 500).

Along with the reintroduction of joint settlement with a child, the provisions include:

• increased child tax relief – a child can earn more without losing their parents’ tax preferences – after 1 July this will be up to PLN 16,061.28 in 2022 (12 times the social allowance),
• extension of tax reliefs – the relief for families of 4+, the relief for the young, the return relief, and the relief for working seniors will also cover maternity benefits granted to parents and guardians bringing up children,
• preference – a child with a tax-free amount – family allowances of minor children will not be added to parents’ income, a child treated as a separate taxpayer will benefit from a tax-free amount.

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