Further guidance and changes for PIT taxpayers and withholding agents

A round of amendments and guidance documents has appeared recently in relation to the calculation and collection/withholding of personal income tax (PIT), including:

• The Finance Minister regulation of 7 January 2022 on the extension of time for certain withholding agents to collect and remit advance payments of personal income tax (“Regulation”);
• Tax Guidance of 20 January 2022 (“Guidance”) relating to the Regulation;
• Finance Ministry’s position paper of 20 January 2022 regarding the extension of time for certain withholding agents to collect and remit advance payments of personal income tax in 2022 (“Position Paper”); and
• Draft bill of 24 January 2022 to amend the Personal Income Tax Act and the Act on Occupational and Social Rehabilitation and Employment of the Disabled (“Draft Law”).

Please find below a summary of the guidance and changes mentioned above:

• Advance tax collection rules under the Regulation apply to advance PIT amounts withheld by the agent in any month in which the gross income received by the taxpayer from the agent does not exceed PLN 12,800. This applies to income earned by way of:
  • employment, appointment, outwork, cooperative employment, social insurance money allowances paid by employer, patronage refunds in cooperatives;
  • pensions, disability benefits (including renta socjalna), pre-retirement benefits and allowances, compensation allowances for teachers, money allowances paid by the social insurance system, agricultural restructuring rents (renta strukturalna), and allowance for parents giving up employment to raise children (rodzicielskie świadczenie uzupełniające);
  • contracts for services under Article 13(8) of the PIT Act (Journal of Laws of 2021, item 1128);

provided that the PLN 12800 limit applies to each such source of income separately.

• The Guidance contains a number of examples intended to illustrate how to:
  • calculate the PLN 12800 limit, including for tax-exempt income, social security benefits, and income earned from several sources at the same time;
  • withhold advance tax, including where the taxpayer withdraws form PIT-2 or requests the agent not to extend the time for collection of advance tax, or how to treat advance tax that has not been withheld.
• The Draft Law seeks to enact amendments which are generally those already set out in the Regulation (for all practical purposes elevating them to the level of statutory law), except for the following differences:
  • The Draft Law is intended to apply to advance tax for the period February to December 2022, while the Regulation applies to income earned in the period 1 January 2022 to 31 December 2022.
  • The Draft Law is supposed to enter into force next day after its promulgation while the Regulation has been in force since 8 January 2022.
• According to the Guidance, withholding agents are required to apply the Regulation without waiting for the Draft Law to be enacted and effective and it is only the taxpayer (e.g. employee) that may waive its application by making the relevant request with the withholding agent (e.g. employer).
• Also, the Position Paper reads in relevant part as follows: “(…) a withholding agent’s (employer’s) failure to apply the regulation will be tantamount to acting to the detriment of relevant taxpayers, e.g. its employees. (…) a withholding agent’s failure to comply with tax requirements means non-compliance with generally applicable laws. (…) the application of the regulation by a withholding agent means the agent is in compliance with generally applicable laws.”
• Both the Regulation and the Draft Law are concerned with “extension of time to collect and remit” advance PIT payments, but not with the waiver of collection. It is therefore to be expected that even if advance tax is withheld during 2022 in accordance with the 2021 rules, the taxpayer’s tax position will be brought in line with the current law anyway, whether in subsequent months or, at the latest, in their annual tax return, meaning a top-up tax payment will be charged from the taxpayer themselves.
• With that said, Prime Minister Morawiecki suggested at his press conference on 21 January 2022 that further adjustments are already being planned to change the Polish Deal framework in force as of 1 January 2022. We will keep you up-to-date with these changes once the proposed legislation is officially published in draft. Among other things, Mr Morawiecki announced:
  • an increase of the gross income limit for middle class relief to PLN 12,800 monthly; such a limit appears in the Regulation for the purposes of PIT withholding but it is inconsistent with the lower limit currently applicable for the purposes of middle class relief;
  • favourable or at least neutral changes for single parents whose monthly earnings do not exceed PLN 12,800; however, this is about small adjustments to the law already in force since 1 January 2022, not about reverting to the 2021 legislation which was generally more favourable in this regard;
  • right for persons whose average monthly gross income is up to PLN 12,800 and who file form PIT-37 to reclaim the difference for 2022 if the 2021 tax treatment ultimately proves more favourable for them than the 2022 rules, which means a downward adjustment of tax to conform to the previous law.

If these issues pertain to your business and you are interested in our assistance, please contact us.

This blog post is provided for general information purposes to keep you up-to-date with changes in tax law, tax rulings by authorities, case law of courts and interesting commentaries. Doradztwo Podatkowe WTS&SAJA shall not be held legally liable for any acts or omissions resulting from reliance on such information.