Young individuals who are just starting their careers often don’t earn high incomes due to lack of experience. The government has extended a helping hand to them by introducing what is known as “zero PIT” (Personal Income Tax). What does this entail? Who can benefit from it? How much can one save through zero PIT, how to declare it, and what are the potential drawbacks of using this relief?
What is the zero PIT for young people?
Since August 1, 2019, a tax relief for young people, known as zero Personal Income Tax (PIT) for individuals up to 26 years old, has come into effect. This means exempting these individuals from paying tax, but under certain conditions. Firstly, the relief applies to incomes not exceeding 85,528 PLN within the tax year. Additionally, these incomes can only be derived from an employment contract or a contract for specific work. The relief applies to incomes earned from August 1, 2019 onwards. From this moment, the payer, meaning the employer, is not obliged to deduct advance payments for income tax from the young employee who submits the appropriate declaration. If they fail to submit it, the tax will be deducted, and the employee will receive a refund in the annual tax return.
Who can benefit from this tax relief?
The zero PIT applies exclusively to individuals up to the age of 26, employed under an employment or commission contract, and earning no more than 85,528 PLN annually. Each year, over 2 million people will be eligible for this tax relief. However, young individuals who earn above the mentioned amount or work under contracts for specific work (e.g., civil law contracts) or run their own business will not be eligible for it. Additionally, young individuals whose sole earnings come from internships or apprenticeships cannot benefit from this relief.
How much can be gained from this with the minimum wage?
The higher the earnings, the more one can gain. The monthly salary of a person benefiting from the relief will therefore be significantly higher than before. A person earning the minimum wage, which is 2,250 PLN gross, will gain 133 PLN per month thanks to the zero PIT, which amounts to 1,592 PLN over the course of a year. With the average salary this year being 4,765 PLN, a young person will gain 355 PLN per month, resulting in over 4,000 PLN over the course of the year. However, the tax relief does not exempt from paying ZUS contributions. Unfortunately, in this regard, the relief is not as advantageous, as health insurance contributions reduce the income tax. With no income tax, the contribution must be paid from the salary. This year, young people will not feel this yet, because after settling for the year 2019, they will receive a refund of the paid contributions. However, next year, having no tax, they will pay a contribution at a rate of 9%.
Two ways to settle the tax relief
Tax relief can be settled in two ways. The first method is by traditionally submitting an annual tax return, and the second is through an employer’s request. However, if a young employee does not exceed the relief limit, they do not need to file a declaration. In case of exceeding the limit, a declaration must be submitted, indicating the excess amount and the wages received from January to July under normal conditions, as well as from August to December under the new conditions. If the payer deducted advances during the period from August to December (in the absence of the employee’s declaration), the amount of the advance must be included in the settlement to enable a refund of the paid tax.
What can be lost by using the tax relief?
Unfortunately, gaining one thing can mean losing another. The increase in income for young workers due to the tax relief may result in the loss of some benefits. This particularly concerns benefits for young parents. Becoming parents under the age of 26 may mean saying goodbye (for example) to maternity benefits or childcare allowances, as the increase in salary may lead to exceeding the income thresholds for receiving benefits.
The tax relief for young people up to the age of 26, on one hand, seems like a good idea, but on the other hand, it’s not as beneficial. In some way, the government must compensate for the budget loss caused by the lack of tax from over two million people.