In 2023, there is a salary tax exemption for people under the age of 26. In practice, therefore, young employees get higher wages “on hand”, because the employer does not have to pay advances on income tax from their wages.
The relief, in force from August 1, 2019, initially applied only to income from employment and related relationships (i.e. business relationship, cottage industry, cooperative employment relationship) and mandate contracts. Pursuant to the regulations in force, the exempt income could not exceed PLN 85,528.
Since January 2021, changes to the tax relief for young people have been in force. Published on the 30t of November 2020, the act amending the act on personal income tax, the act on corporate income tax, the act on flat-rate income tax on certain revenues earned by natural persons and certain other acts extended the tax relief to income from:
- Completing a graduate internship referred to in the provisions of the Act of 17th July 2019 on graduate internships (Journal of Laws of 2018, item 1244);
- A student internship referred to in art. 121a of the Act of December 14, 2016 - Education Law.
The revenue limit is not changed.
Tax deductible costs may not be higher than taxable income.
The surplus over PLN 85,528 is subject to taxation according to the tax scale. If the surplus does not exceed PLN 120,000, the applicable tax rate will be 12%. Only surplus above PLN 120 000 will be taxed with 32% rate. That means that the income of people covered by the will be effectively taxed at the rate of 32% only after exceeding the amount of PLN 205,528.
Income obtained after the 26th birthday does not benefit from youth relief, even if it concerns receivables under contracts concluded before that date or for work performed before that date.
Additionally, on December 27, 2022, the Ministry of Finance's clarifications were published, which provide general explanations on the exemption of the payment of personal income tax under Article 21 (1) (148) of the PIT Law, known as the "youth tax relief."
Who is not covered by the PIT exemption as part of the youth relief
PIT tax exemption does not apply to:
- Conducting non-agricultural business activity (self-employed), cooperating on the basis of B2B,
- Employed under contract work,
- Who receives remuneration from copyright.
It's also worth noting that a taxpayer who exceeds the limit of the income exempt from taxation under the youth relief will be required to pay the tax due on the surplus - the tax on this will be shown in the annual return for the tax year for which the return is filed.
Youth tax relief and revenues earned abroad
- The income earned abroad, to which the method of exemption with progression applies (eg income from Germany, France, the Czech Republic, Switzerland, Sweden), is not included in the tax base;
- The income earned abroad, to which the method of proportional deduction applies, is included in the tax base where the tax credit method is used: (e.g. income from Great Britain, Austria, Greece, Denmark).
PwC Comment
The most advantageous forms of employment are mandate contracts concluded, for example, with students, due to the high flexibility that is beneficial for principals and contractors. In addition to exemption from PIT as part of the youth relief, it is worth paying attention to aspects of ZUS. According to Art. 6 para. 4 of the Act on the Social Insurance System, persons performing, inter alia, the mandate contract is not compulsorily covered by retirement and disability pension insurance, if they are students of secondary schools or students, up to the age of 26. Such persons are also not covered by health insurance (Article 69 (1) of the Act on health care services financed from public funds). The ordering party does not have to report them to ZUS or deduct any insurance premiums from the amount of their remuneration.
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