The law amending the Polish Deal – after accepting some of the Senate’s amendments – has been signed by the President. Compared to the originally enacted law, the rules for single parents to account for their children were changed, and the percentage of tax donated to public benefit organizations was increased. The provision allowing “linemen” to deduct part of the health contribution paid from their taxes was also clarified. What is the list of key changes that will be introduced by the amendment to the Polish Deal – already including the Senate amendments?

The Sejm considered amendments brought by the Senate on June 9, 2022. In addition to editorial changes, two important regulations were adopted. The first reinstates the rules in effect in 2021 for a single parent with a child to file a tax return, meaning that such a taxpayer will be able to take advantage of double the tax-free amount. The second of the aforementioned amendments will increase the percentage of tax given to public benefit organizations – from 1% to 1.5%. Below are the 8 most important changes that the Polish Deal 2.0 introduces.

1. Possible change in the form of taxation

The possibility to choose the form of taxation again will be limited only to the choice of general rules (tax scale). This means that an entrepreneur currently settling under the general rules will not be entitled to change the form of taxation to a flat tax or a flat rate. It will also not be possible to switch from a flat tax to a flat tax or from a flat tax to a flat rate.

2. Reduction of the tax rate to 12%

Reduction of the tax rate in the first tax bracket from 17% to 12% for PIT taxpayers settling in accordance with the general rules (entrepreneurs settling according to the tax scale, persons employed under a contract of employment, persons receiving remuneration for appointment, contractors, pensioners). The change is intended to compensate for the elimination of the middle class relief.

3.  Elimination of relief for the middle class

Ever since the ruling party announced that it planned to overhaul the Polish Deal, the “removal” of middle-class relief has been one of the main tenets of the proposed changes. Importantly, the law is to take effect on July 1, 2022, while the removal of middle-class relief is to apply retroactively – from January 1, 2022.

While the elimination of the middle-class deduction itself means that a person accounting according to the scale will receive a lower salary, this will be compensated for by the – already mentioned in the second point – reduction of the tax rate to 12%. Ultimately, the employee will receive a higher net salary than in the period from January to the end of June 2022. As a result, it is certain that those settling according to the tax scale will not lose out on the changes that will take effect on July 1, 2022.

While the elimination of the middle-class deduction itself means that a person accounting according to the scale will receive a lower salary, this will be compensated for by the – already mentioned in the second point – reduction of the tax rate to 12%. Ultimately, the employee will receive a higher net salary than in the period from January to the end of June 2022. As a result, it is certain that those settling according to the tax scale will not lose out on the changes that will take effect on July 1, 2022.

Net remuneration according to the Polish Deal: PLN 5,024
Net remuneration according to the Polish Deal 2.0: PLN 5,102
Hypothetical net salary assuming that the tax rate is reduced and the middle class relief is not removed: PLN 5,163.

As the amounts above indicate, the taxpayer will gain PLN 78 from the changes, while he would gain nearly twice as much, or PLN 139, if the middle-class relief were left in place.

Given that the regulations will take effect retroactively (as of January 1, 2022), those settling according to the scale will recover the amount of overpaid advances at the stage of filing the annual return for 2022.

4. Return of relief for single parents

As of July 1, 2022, the relief for single parents, which was previously removed with the entry of the Polish Deal, will return. Initially, it was assumed that the mechanism for calculating the relief itself would be the same as in 2021. – i.e. an analogous mechanism to that of joint accounting with a spouse. The difference, however, was to be that a single parent – accounting jointly with a child – was to be entitled to one and a half times the free amount, which means PLN 45,000 (previously it was double). However, the Senate tabled an amendment to restore the relief in the form in force in 2021. – It was adopted by the Sejm. As a result, a single parent accounting jointly with a child will be able to take advantage of double the tax-free amount. It will also increase its I tax threshold to PLN 240,000 (double the I tax threshold).

The Sejm also adopted amendments by the Senate, according to which a joint settlement with a child will also be entitled to a person who is raising at least one child jointly with the other parent or legal tutor, including when the child is under alternating custody, in connection with which both parents have been determined a child-rearing benefit – in accordance with the Law on State Aid for Child-Rearing.

As the relief for single parents will be reinstated, the relief for single parents will be removed. Under this relief, the taxpayer was entitled to a one-time tax deduction of PLN 1,500 at the stage of preparing the annual return. It seems that the new solution should be more favorable.

As with the reduced tax rate and the removal of the middle class relief, the above rules will have to be applied to income (revenue) earned from January 1, 2022. This means, therefore, that a taxpayer settling jointly with a child will benefit from the relief at the stage of filing the annual return for 2022, and the relief will apply to income earned between January and December 2022.