Polski Ład in English 2.0

Polski Ład in English. Eh… yes. It’s not a Deja vu. The Polish Order, aka the New Deal, is renamed the “Polish Order 2.0” or the “New New Deal”. Only a few months after its introduction, politicians change the rules of the game during the game. Sounds ironic, right? In my mind’s eye, I hear accountants tearing the hair out of their heads. But what is it all about? Let me give you a brief overview of the history and the latest tax changes.

• Short historical review
• 12% on the tax scale
• Abolition of the middle-class tax relief
• Re-selection the change in the form of taxation
• We will throw the health insurance premium into the costs
• Other changes
• What has not changed
• Summary and more articles about Polski Ład

Short historical review

Tax rules for natural persons, which are in force from the first January of this year, are no longer valid. Our rulers came to their senses to find that the current system and the relief for the middle class makes no sense. Mostly, because no one understood them. And maybe what I am going to say now will not be very objective, but I have the impression that by using the war in Ukraine as un undercover, they are introducing the so-called Anti-Putin Shield, which aims to sort out the mess they created themselves. However, the changes they are introducing seem to be positive.

You will find below a video from Sławomir Mentzen, who in a quite humorous (and sarcastic), but very factual way, talks about the upcoming changes. Mentzen is a Polish politician, entrepreneur, tax advisor and economist. Owner of accounting offices, hunting shop and tax offices. Quite a lot, isn’t it? Unfortunately, no English-language subtitles… However, the video below with his interpretations were one of my sources of information while writing this article. But to the point. What is the whole noise about, this time…?

12% on the tax scale – Polski Ład 2.0 in English

The announced change in taxation applies to:

• employees employed based on an employment contract, a specific task contract, a mandate contract, people receiving a retirement pension, as well as all people using the tax scale
• entrepreneurs running a business that settle the accounts on general terms (tax scale or progression)

There is no requirement to meet any additional conditions apart from using the tax scale in order to benefit from the reduced tax rate. This is actually a very good change, especially if we take into the consideration next point, which is…

…. abolition of the middle-class tax relief

With the removal of the middle-class allowance, will the tax reduction be still beneficial? Yes. Let’s have a look at an example, published by inFakt.

Taxpayers in the first tax threshold, up to the amount of income of PLN 120,000, will pay the tax 12% instead of the current 17%. At the same time, the tax-free amount will remain at PLN 30,000. Thus, taxation at the first tax threshold is subject to PLN 90,000. The difference between PLN 15,300 (90,000 x 17%) and PLN 10,800 (90,000 x 12%) is PLN 4,500. This is what the maximum tax advantage could be.

The new 12% rate is to apply for the entire 2022. However, with the abolition of the middle-class tax relief, this benefit decreases. For example, for an annual income of PLN 100,000 PLN, the benefit will be less than PLN 500. It is around PLN 100,000 of income per year, where the tax relief for the middle-class is at its maximum value, the benefit from lowering the tax rate at the expense of liquidating the tax relief will be the smallest.

Source: InFakt

Summarizing, the smallest, but still beneficial.

Re-selection the change in the form of taxation thanks to Polski Ład 2.0

The change in regulations will allow for the re-selection of the form of taxation. However, the changes can only be made on a tax scale by those entrepreneurs who have chosen a scale or a lump sum.

It will be possible to change the form of taxation after the end of the year. In addition, lump sums will be able to change the form of taxation already in the middle of the year, between July 1 and August 22. In practice, this means that they will be able to be taxed in the form of a lump sum for the first half of the year, and in the second half according to the tax scale.

We include the health contribution as a cost – Polski Ład 2.0 in English

Improvements in the settlement of health insurance contributions on flat tax, lump sum and tax card have also been announced. However, no changes were made to the health contribution for the general rules.

• flat tax – settlement of the health insurance contribution in operating costs. We can reduce our taxable income by paid health insurance contributions to a maximum of PLN 8,700. This means that liner entrepreneurs who earn a monthly income of up to PLN 14,795 will be able to put their health insurance contribution into the costs, as well as social contributions. The tax benefit from such a change will amount to PLN 1,653 per year.
• lump sum – we will reduce our income by half of the paid health contributions. This means that with the highest lump sum health contribution (PLN 1,007.81), we will be able to lower our taxable income by PLN 503.91 per month. The tax benefit from such a change, range from PLN 60 to PLN 1,028 per year. This depends on the lump sum rates.
• tax card – we can reduce the tax payable by 19% of the paid health contributions. The monthly amount of the health insurance contribution on the tax card is PLN 270.90. During the year it is PLN 3242.28. The tax benefit of the introduced change is PLN 616.03 (19% x 3,242.28).

So, how will it impact our salary?

Below is an entry from Grant Thornton who very clearly presents the impact of the changes introduced on March 24. As you might see below, these changes look positive.

Uprościliśmy tabelę Tak wygląda różnica.

Obniżka PIT z 17% do 12% oznacza, że osoby na skali zapłacą niższe podatki. Wyliczenia i komentarz @SamborskaM: https://t.co/RXORSgem7f

Zmiany miałyby wejść w życie od 2023 r., (wstecznie od 1 lipca 2022 r.) #PolskiŁad pic.twitter.com/H1dvvacbBq

— Grant Thornton Polska (@GrantThorntonPL) March 24, 2022

Other changes – Polski Ład in English

• Return to the preferential settlement for single parents. They will be able to settle up to 1.5 (times) free amounts, which equals PLN 45 000. Off course, taking into consideration, that the current free amount equals PLN 30 000.
• PIT-2 for up to 3 employers. This means that people with several employment contracts or a mandate will be able to settle the exempt amount with more than one employer. PLN 300 for one contract, twice PLN 150 for two contracts and three times PLN 100 for three contracts.
• Standardization of the terms of the annual PIT settlement (forms: PIT-37, PIT-36, PIT-36S, PIT-28, PIT-28S, PIT-36L, PIT-36LS, PIT-39, PIT-38). All of these declarations will be submitted on 30^th April.

What will not change?

The tax threshold of PLN 120,000 and the tax free amount of PLN 30,000 are to remain unchanged, according to the proposed tax changes presented by the Ministry of Finance. The Minister of Finance assumes that the changes submitted for consultation will enter into force from 2023, but will apply retroactively from July 1, 2022.

According to the ministry, nearly 13 million taxpayers supposed to see benefits comparing to the current situation. The costs for the budget have been estimated at PLN 15 billion annually. The abolition of the middle-class tax relief concerns 3.1 million people. The finance minister also added that the changes affect 25 million taxpayers. These changes are another element of the mentioned already so-called anti-Putin shield. This was said by Prime Minister Mateusz Morawiecki at a press conference with end of March.

The summary of Polski Ład in English 2.0

Politicians say that all changes are either positive or neutral for all taxpayers. And frankly speaking, I don’t want to be over-optimistic at the moment, but indeed, it looks better. Better than what has been released and patched in the last few months. However, it is important to remember who made this mess. Anyway – I keep my fingers crossed for a better change.

The prime minister announced that other proposals for changes will also be presented in the coming weeks. Mainly affecting companies. The changes I have presented in this article apply to private individuals and sole proprietorships. Let me know in the comments what you think about these changes. You can also find below a link to my original article about Polski Ład, which describes not only the changes for taxpayers, but also the general concept including changes in the health care, pension, housing and the general investment program.

Taking into the consideration the fact, that the Polski Ład cause a lot of a questions, I listed below articles on my blog, which are dedicated to it. Just for case, if you would like to refresh your knowledge or simply know more about the “New New Ład”. At the end, it is not only about the taxes.

• Polish Deal – “Polski Ład” in English
• Polski Ład and impact on your salary
• Ulga na powrót – Relief to come back

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https://wiecejwportfelach.gov.pl/; https://www.infakt.pl/blog/nizszy-podatek-dochodowy-1-lipca/; https://www.bankier.pl/wiadomosc/Rzad-naprawia-Polski-lad-Zniknie-ulga-dla-klasy-sredniej-stawka-PIT-w-dol-8304700.html

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