Everyone who achieves any legal income in Poland is obliged to pay income tax . Some people think that this duty only applies to companies, but this is not true. Income tax must pay both natural and legal persons, so it does not matter if you work full-time or if you are a partner in a commercial law company or run a sole proprietorship.
Many people, especially those who work for a company, do not know how to calculate income tax, where to pay it and when. They do not need to know this because they are supervised by employers, specifically employees responsible for accounting and payroll matters. However, novice entrepreneurs must be aware of this topic, especially those who intend to settle their income tax themselves. Therefore, we will try to bring this complicated matter to light and tame it a bit, because incorrect settlement of income tax may lead the company to unnecessary problems and result in a fine.
What is income tax? What is taxable?
Definitions, as definitions, are different. There are simplified versions and those intended for people who already have secret knowledge in the field of taxes and other financial settlements. However, we will use a simplification. Income tax is an obligatory benefit to the state. It depends on the amount of income after deductions, which include tax deductible costs. It’s simple: income-income costs = income. And it is the income that forms the basis for calculating the tax in question.
Income tax (PIT) covers all income obtained from individual business activity or participation in a partnership. This is regulated by two legal acts: the Act of 26 July 1991 on personal income tax (Journal of Laws of 2010 No. 51, item 307, as amended) and the Act of November 20, 1998 on flat-rate income tax from certain revenues earned by natural persons (Journal of Laws No. 144, item 930, as amended).
Types of taxation – what you need to know?
Pursuant to the aforementioned acts, every person starting a business is subject to automatically taxing income on general principles, i.e. according to progressive rates. Then, by January 20 of the next tax year, it can pass on a flat rate or flat tax. However, in order to make this possible, he must submit a relevant statement to the head of the Tax Office before the first income is obtained. Then, in subsequent years, the mentioned date of January 20 also applies, when an entrepreneur must submit such statements, because the possibility of using another form of taxation exists for only one tax year. You can also opt out of flat rate or line tax in writing and return to general rules.
But in order to decide what form of taxation is planned to be covered by the planned or already carried out activity, one must know what these options are.
- Progressive tax . This is tax settlement on general terms, and in other words, calculation of income tax according to the tax scale. The 2018 tax rate is 18% on income to PLN 85,528 and 32% on income above this amount. Entrepreneurs using this option may deduct social security contributions from their income, while from the tax itself, contributions for health insurance and a reduction in premiums, ie PLN 556.02.
- Line tax . This is the form most often chosen by companies achieving high income, because regardless of their size, they pay a tax of 19%. However, this preferential rate makes it impossible to use all deductions belonging to the progressive form. Here, you can not make a deduction from income tax in the form of PLN 556.02.
- Flat tax . A taxpayer who decides on this form of taxation does not have to keep a book of revenues and expenses, but only a record of income. It does not deduct costs and the calculation of income tax due is much simpler. It is also possible to deduct social insurance contributions from income and health insurance premiums from the calculated income tax amount.
Calculation of individual types of income tax
Some entrepreneurs entrust the calculation of income tax and the supervision of all financial matters to the accountant. Larger companies employ such people, smaller companies use the services of various accounting offices. However, at the beginning of a business road, there are always funds and you have to calculate everything yourself. That is why we are introducing the methods of calculating income tax for the variants described earlier.
- We count income from the beginning of the year cumulatively, which means it is larger every month. We also calculate costs in the same way and subtract this amount from revenues. In this way, we obtain the amount of income.
- The amount of income can be subsequently deducted from the previous year’s loss, if it was, and the sum of social insurance contributions paid in a given tax year.
- The final amount received is the taxable income, the so-called the tax base.
- This amount should be rounded up to full zlotys.
- We multiply the tax base by 18%, if it is an amount not exceeding PLN 85,528. In the case of higher income, we multiply by 32% the tax rate.
- From the amount obtained, we subtract the sum of health insurance premiums paid in a given tax year, but not all, but only 7.75% from the base (the total is 9%).
- From the calculated amount, we deduct income tax advances paid in a given tax year.
- Then, in the case of 18%, we deduct the amount of 556.02. In the case of higher income and 32% rate, it is not allowed to do so.
- The amount obtained is a tax due, ie the sum to be paid to the tax office.
- We calculate the income amount exactly the same as in the previous variant.
- And exactly the same, we deduct social security contributions and a possible loss.
- The difference is that we multiply the obtained amount by 19%. We round off the obtained amount.
- Then, we deduct health insurance premiums and income tax prepayments from the amount of tax, the same as in the option of progressive tax. We obtain the amount of tax due.
- Important: in this option, we do not deduct PLN 556.02.
- We count revenues earned in a given tax year, without deducting costs.
- We deduct from this amount the sum of social insurance contributions paid in a given year. You can also deduct premiums that were not included in previous tax calculations.
- We round off the amount obtained to full zlotys, and then multiply by the tax rate assigned to the type of business. The list of rates and the list of activities is included in the Act on flat-rate income tax on certain revenues achieved by natural persons, specifically in art. 12 para. 1.
- You can now deduct 7.75% of the base for health insurance contributions from the tax amount. You can also include contributions here that have not been included before.
- The amount thus obtained, after rounding off, is the sum of income tax due to the Tax Office.
Income tax – other important information dates
The entrepreneur is obliged to make advance payments on income tax by the 20th day of each month following the month to which it relates. The exception is December. Then entrepreneurs who before the 20th of January the next year will submit a PIT tax return and pay the tax calculated therein. In the case of quarterly settlements, this rule does not apply.
New changes are introduced in 2018. If the value of the advance on income tax does not exceed PLN 1000, the taxpayer may postpone the payment of tax in time and it does not apply to the mentioned date, ie to 20 each month. We are talking about the amount obtained after deduction of the sum of previously paid advances on the amount of income earned from the beginning of the year.
From 2007, there is no obligation to submit periodic tax declarations to the Tax Office. The entrepreneur only has to pay the calculated fees to the account of the competent Tax Office together with the entry of the relevant transfer title, e.g. PIT-36 for V.2018. The PIT annual settlement is submitted by 30 April the following year after the given tax year, ie income tax 2018 should be settled by April 30, 2019. This rule, however, does not apply to companies settling in the form of a flat tax, here the deadline for submitting the annual tax return is January 31 .
Entrepreneurs accounting on general terms, i.e. in the variant of progressive tax, must complete the annual statement on PIT-36 printing. People who have opted for a flat tax fill PIT-36L. In turn, the flat tax has to be settled on PIT-28. Interestingly, neither of these forms is leading and if one person runs two types of activity and settles income tax in different ways, he must settle on two different forms.
On the internet, you can now find useful tools and information that will help you settle income tax. Here you can find income tax calculators 2018, practical tips on how to calculate income tax and electronic forms that you pay for
At the end, a slightly more pleasant side of tax duty, which is usually the bane of many entrepreneurs in our country. Advances on income tax can be reduced by the tax-free amount. Not much, but it’s always a relief. It is a tribute to the smallest companies that do not generate revenues above the threshold of PLN 85,528 per year, as well as PLN 13,000. The latter group are usually people who incidentally provide services and achieve irregular income from their activities.
And yes, for taxpayers taxed at the tax scale, this tax deductible amount is:
- PLN 1440 – for the tax base not exceeding PLN 8,000. PLN 1440 reduced by the amount calculated according to the following formula: PLN 883 98 gr × (tax basis – PLN 8,000) – PLN 5000, for the tax base higher than PLN 8,000 and not exceeding PLN 13,000;
- PLN 556.02 – for the tax base higher than PLN 13,000 and not exceeding PLN 85,528 . PLN 556.02 minus the amount calculated according to the formula: 556 PLN 02 gr × (basis for calculating the tax – 85 528 PLN) ÷ 41 472 PLN, for the tax base higher than 85 528 PLN and not exceeding 127 000 PLN;
|The basis for calculating the tax in PLN||The tax is|
18% minus the tax reduction amount
15 395 PLN 04 gr + 32% surplus over 85 528 PLN minus a reduction coefficient
The above calculation principles can be applied only when preparing the annual statement for 2018 and, what is important, they do not apply to entities that have achieved revenues exceeding PLN 127,000 per annum.
Tax issues are not liked or easy, however, while running a business, you can not miss this topic. A budding entrepreneur must usually deal with this matter alone. Therefore, it is worth acquiring this knowledge, so that you can make a settlement of income tax correctly and on time, and thus do not fall into serious problems with the tax authorities.