The year 2019 brought significant changes in taxes. Since October 1, 2019, a lower personal income tax (PIT) rate has been in effect. Who does the reduction apply to, what is its purpose, what does it entail, and how much can one gain from it with the lowest and average incomes?
Reduction in PIT tax
President Andrzej Duda recently signed a law that introduced changes to the Personal Income Tax Act, as well as a law that amends both this law and some others. According to the provisions of this law, the income tax rate has been reduced from 18% to 17%. This change came into effect on the first of October. However, it should be noted that the new income tax rate applies only to the first tax bracket. Therefore, only those individuals who earn income below the established threshold of 85,528 PLN will feel the impact of the change the most. Exceeding the threshold will still require the payment of tax at a rate of 32%. The lower personal income tax will apply to all individuals who are subject to general taxation rules, meaning their income is derived from an employment contract, mandate contract, or work contract, as well as pension, disability pension, non-agricultural business activity, or property rights.
Why was the tax rate changed?
Prime Minister Mateusz Morawiecki once explained the purpose of implementing these changes. He clarified that the changes are primarily aimed at creating the so-called middle class in Poland. The introduced changes are undoubtedly positive for taxpayers, however, like any changes, they provoke certain controversies, especially since they are being implemented during the tax year. The concerns are not surprising. Both payers and taxpayers have the right to be concerned and wonder how tax settlement for 2019 will now be carried out. It cannot be denied that the government wanted to implement these changes before the elections. Perhaps if it were not for the elections, the changes would have been introduced at a different time, for example, at the beginning of the new tax year.
Consequences of PIT reduction
Even 60% of Polish taxpayers will experience the benefits of the PIT reduction. Primarily, the reduction should result in higher wages for employees. However, it won’t be a significant raise and may even go unnoticed. Considering all the expenses we have every month, it’s easy to see that this slight increase in salary won’t make much of a difference. Expenses are high and plentiful, so we won’t particularly feel the increase in our income. However, a minor raise is just one positive effect of these changes. Firstly, it will lead to a decrease in local government revenues, which will limit spending on things that surround us. The rush to implement these changes during the tax year also holds significance. It forces taxpayers, as well as all HR and accounting personnel, to implement changes within just a month, potentially causing issues with accurately reporting incomes.
How much can taxpayers gain?
It should also be noted that in addition to lowering the tax rate, the costs of obtaining income for employees will double. For individuals working full-time at their place of residence, whose costs were previously 111.25 PLN, they will now increase to 250 PLN, and for those commuting to work, whose costs were 139.06 PLN, the increase will be 300 PLN. These are monthly amounts, and annually they will amount to 3 and 6 thousand PLN. Multi-job holders will incur even higher costs of obtaining income. How will this translate into profits? The annual profit for an individual earning the minimum wage (2250 PLN) will be 472 PLN, while the profit for an individual earning the average wage of 4765 PLN will be 732 PLN. This translates to just over 39 PLN per month for an employee earning the minimum wage and 61 PLN for an employee earning the average wage. As can be seen, this profit is not so significant and in the final analysis will not be very noticeable against expenses.