Tax benefit for young people. Who can take advantage of it?

People under the age of 26 can benefit from the zero pit for young people if their work-related income does not exceed PLN 85,528 per year. This applies to income from different types of employment, such as, for example, full-time work or an assignment contract. In addition, certain benefits such as allowances, bonuses and overtime remuneration are not taxable.

If your income exceeds this limit, only the excess is taxable. Income from self-employment, business or social benefit contracts is not exempt, but it does not affect the amount of income eligible for relief. Despite exceeding the single-source income limit, if a significant proportion of your income comes from the above-mentioned work, you can still benefit from tax relief.

The youth exemption also applies to income earned in Poland and abroad, except those exempted from taxation under international double taxation treaties.

The youth exemption was introduced on August 1, 2019, resulting in a significant reduction of the tax exemption limit for that year to PLN 35,636.67 for 5 months. Income is recorded from the first day of each year.

As of January 1, 2020, the limit on tax-free income is PLN 85,528 per year and continues to apply in subsequent years. This means that monthly earnings under an employment contract or assignment contract can be up to PLN 7127. Importantly, the limit is calculated annually, so the total amount of the taxpayer’s income declared in the annual tax return is relevant. Contracts shorter than one year can generate a monthly income of more than PLN 7127 if the total income during the year does not exceed PLN 85,528.

The unused portion of the limit in a given tax year is forfeited and does not carry over to the next year.

Changes to youth benefits also exempt from taxation income related to postgraduate or student internships for the purpose of professional training.

Do persons under 26 years of age have to file a pit declaration?

People who in 2022 earned only amounts subject to the youth allowance (not exceeding the total amount of PLN 85,528) do not have to file an annual tax return in 2023/24.

If income exceeded PLN 85,528 during the year, the taxpayer must report and calculate only for earnings exceeding the limit from January 1, 2022 to December 31, 2022. For people under 26 years of age, only the amounts exceeding the limit will be taxed, not all income.

All individuals utilizing the youth tax credit must file a paper or electronic statement of eligibility. If they received taxable income from:

• business activities,
• contracting agreement,
• management contract,
• cash payment from social security,
• earnings from labor rights, copyrights or leases.

The taxpayer does not file the required declaration pit

If one avoids paying tax and does not report his income to the relevant authorities, he is at risk of tax reduction and is subject to a fine of up to 720 day rates or imprisonment or both sanctions at the same time.

In case of a smaller tax reduction, the penalty is proportionally smaller, especially if it does not exceed five times the minimum wage (at the time of non-submission of the annual declaration). In such situations, the penalty is usually several hundred PLN.

Where should I file my declaration?

According to the changes from the beginning of 2022, every taxpayer must file an annual tax return with the tax office. This must be done at the place of residence on the day of submission of this return. This differs from the previous practice, when the tax return was filed with the tax office at the place of residence on the last day of the previous year.

What's happening with ZUS payments?

People under the age of 26 can take advantage of the youth exemption. But this does not mean that they are exempt from paying ZUS contributions if they are covered.

ZUS contributions are paid into the National Health Fund (NFZ). It entitles contributors to health services such as reimbursement for prescriptions, certain medications, hospital procedures and doctor's visits.

Young spouses often wonder about the impact of the overall personal income tax calculation on the youth tax credit limit. The Ministry of Finance has clarified this issue:

• In the case of married couples

Regardless of whether they choose to provide individual or total annual compensation, the limit of 85,528 PLN is available to both spouses.

• If one of them does not use the entire limit in a particular year

The unused portion is not transferred to spouses or increases the available limit in subsequent years (the benefit is not carried over to the next tax year).

• If both spouses are under age 26 and file a joint return

In this case, the maximum exemption for them is not changed and the limitation is not transferred to another person.

Maternity and sickness benefits are financed by sickness insurance, not health insurance.

Under the New Deal introduced in 2022, health insurance premiums will no longer be taken out of the tax base.

What if someone turns 26 years old in 2022?

If someone turns 26 in 2024, they must pay pit. In such a situation, only income received after the age of 26 is taxable. The day of your birth plays an important role here. All income received up to and including that day is exempt from income tax.

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