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Incorrect qualification of the contract and settlement of social security contributions

One of the basic tasks of the Social Insurance Institution is the control function of settling ZUS contributions by authorized payers. As a result of carrying out numerous inspections, it turns out that in some cases ZUS questions the legitimacy of the concluded type of contract. As a consequence, it orders the overdue ZUS contributions to be charged as a result of reclassification of the contract. It often happens that after a ZUS inspection, both the contractor and the principal (employer) have a problem with the tax settlement of overdue ZUS contributions. No wonder, because the tax office has a different opinion, and a different position can be found in court judgments. What to do when an incorrect contract qualification occurs?

Obligation to calculate ZUS contributions

As indicated in art. 36 sec. 1 of the Act on the Social Insurance System (hereinafter referred to as the Act on Social Insurance), each person compulsorily covered by retirement and disability pension insurance is subject to notification to social insurance.

The obligation to report to social insurance persons employed under an employment contract, but also, inter alia, people providing services on the basis of concluded civil law contracts, people doing homework, people receiving a sports (doctoral) scholarship and many other insured persons are members of the contribution payer.

Applications for social insurance or health insurance shall be made by the contribution payer within 7 days from the date on which the insurance obligation arises.

Breakdown of ZUS contributions in terms of financing

If the contribution payer deals with an employment contract or a mandate contract, the breakdown of contributions financed by the employer / principal and the employee / contractor is as follows.

Division of the financing of ZUS contributions in the case of an employment contract and a mandate contract
Type of contribution	Employer	Employee
Retirement	9,76%	9,76%
Profitable	6,5%	1,5%
Illness (voluntary under the contract of mandate)	-	2,45%
Accident	1,67%	-
Health	-	9%
labor Fund	2,45%	-
FGŚP	0,1%	-

Although ZUS contributions are financed by both the employee (contractor) and the employer (customer), they are obliged to calculate, account, show in documents, deduct from the employee's (contractor's) remuneration and pay all ZUS contributions for the employee (contractor) to ZUS. , there is a contribution payer (employer).

Pursuant to Art. 17 sec. 1 and sec. 2 of the Act on Social Insurance, contributions for retirement, disability, accident and sickness insurance for the insured (with the exception of some) are calculated, settled and transferred to the Social Insurance Institution (ZUS) in their entirety by payers of contributions.

Therefore, they calculate some of the contributions for retirement, disability and sickness insurance financed by the insured and, after deducting them from the funds of the insured, transfer them to the institution.

On the other hand, pursuant to Art. 32 of the Social Insurance Act to contributions to the Labor Fund, the Solidarity Fund, the Guaranteed Employee Benefits Fund and the Bridging Pensions Fund as well as health insurance in the field of: collection, enforcement, late payment interest and additional fees, penal provisions, security on all real estates , the debtor's movable property and transferable rights, the liability of third parties and heirs, and the application of reliefs and redemptions, the provisions on social security contributions shall apply accordingly.

Therefore, the obligation to calculate, show in documents, and withhold other contributions for the (insured) employee or contractor remains the compulsory responsibility of the contribution payer.

Deduction of social security contributions from income

At the outset, it is worth emphasizing that under Art. 46 sec. 1, as well as art. 47 paragraph. 1 point 3 of the Act on Social Insurance, the contribution payer is obliged, in accordance with the provisions of this Act, to calculate, deduct from the income of the insured, settle and pay due contributions for each calendar month, while their settlement is to take place by the 15th day of the following month after the month settlement of contributions.

Of course, contributions unpaid in the above-mentioned will become overdue. How will their settlement look like then?

As indicated in art. 26 sec. 1 point 2 of the Act of July 26, 1991 on personal income tax (hereinafter referred to as the PIT Act), the basis for calculating the tax (tax base) is the income determined after deducting the amounts of contributions specified in the Act of October 13, 1998 on the insurance system social:

paid in the tax year directly for the taxpayer's own retirement, disability, sickness and accident insurance;
deducted in the tax year by the taxpayer from the taxpayer's funds (in the case of a taxpayer who earns income from membership in an agricultural production cooperative or other cooperative engaged in agricultural production, only in the part calculated in accordance with Article 33 (4) of the PIT Act, i.e. from income taxable)

- the deduction does not apply to contributions the basis of which is tax-exempt income (revenue) under the Act, and contributions whose assessment basis is income from which, based on the provisions of the Tax Ordinance, tax collection was abandoned.

A very important issue in the process of deducting social security contributions from income (or income, if the taxpayer taxes the income with a registered lump sum) is that ZUS contributions may be deducted from income only if:

are paid in the tax year in the case of persons running a business and cooperating persons or
deducted in the tax year from the funds of the contribution payer in the event of transferring ZUS contributions through the contribution payer for persons subject to social and health insurance.

The intentions of the legislator when constructing the above-mentioned regulations. Social security contributions for persons running a business in various forms and for persons cooperating with them can be deducted from the income for a given tax year, when:

are primarily paid as well
are regulated in a given tax year (it is not about the payment of contributions for a given year, but the principle of payment of ZUS contributions, regardless of the period they relate to in a given year).

The above means that if the entrepreneur pays overdue ZUS contributions in the current year, e.g. for the previous year, they will be settled (deducted) in the current tax year (i.e. in the year of payment), and not for the previous year. This will make it possible to deduct the payment of overdue ZUS contributions in the year of payment, despite the fact that they relate to the previous year.

In the second aspect, the case concerns contributions deducted in a tax year from the contribution payer's funds, when he calculates and pays all ZUS contributions for persons registered for social and health insurance.

In this case, the legislator points out that the following are subject to deduction from income:

social security contributions withheld by the payer from the taxpayer's funds in a given tax year (not for a given tax year).

The contribution payer is obliged to settle accounts with ZUS, and then collect (deduct) from the taxpayer's funds (from remuneration) and pay all ZUS contributions due for the employee (contractor), regardless of whether it is financed by the taxpayer or by the payer. If the payer of contributions is in arrears with their payments for the employee (contractor), nevertheless the insured has the option of deducting ZUS contributions for a given year, deducted (collected from remuneration) in a given year from his funds (and not paid by the payer). ) for social and health insurance.

However, the situation is slightly different when the contributions have not been deducted by the contribution payer. This aspect will be discussed later in the publication.

Tax deduction for health insurance contributions

Similar rules as the deduction of social security contributions from the income apply to the deduction of the health insurance contribution from the tax.

Pursuant to Art. 27b paragraph. 1 point 1 of the PIT Act, the calculated tax (tax scale, flat tax, lump sum) is reduced by the amount of the health insurance premium referred to in the Act of 27 August 2004 on health care services financed from public funds:

paid in the tax year directly by the taxpayer in accordance with the provisions on healthcare services financed from public funds;
collected in the tax year by the payer in accordance with the provisions on health care services financed from public funds - the reduction does not apply to contributions, the basis of which is tax-exempt income (revenue) under the Act and contributions, the basis of which is income on the basis of which the provisions of the Tax Code, tax collection was abandoned.

As before, the taxpayer has the right to deduct the health insurance contribution in a given tax year when:

he paid for it himself;
it was collected from the taxpayer's remuneration by the contribution payer, who in this case is obliged to settle, deduct and pay the health insurance contribution (and other contributions for the employee or contractor).

It should be emphasized at this point that the circumstances of changing the qualification of the previously concluded contract are a different situation from the calculation, deduction of ZUS contributions, but also non-payment of them. The contribution payer did not charge, deduct or pay the due ZUS contributions in the correct amount. What are the consequences in this case?

Incorrect qualification of the contract - change versus deduction of social security contributions

A very interesting judgment with reference number I SA / Po 70/20 in slightly different circumstances was issued on November 10, 2020 by the Provincial Administrative Court in Poznań.

The taxpayer obtained revenues in 2014 from copyright. Settled the annual tax return PIT-37 on the basis of the PIT-11 information prepared taking into account the remuneration specified in the contract for specific specific work concluded at that time.

The Social Insurance Institution found that the contract was incorrectly classified and demanded that it be reclassified into a mandate contract subject to contribution.

The findings of the Social Insurance Institution (ZUS) indicate that the contract is incorrectly classified as a specific work contract that the contribution payer:

provided the contractor with overstated remuneration to be paid;
remitted to the tax office too high due tax paid on the PIT-4R remuneration;
he did not charge, account, deduct or pay social and health insurance contributions due to the Social Insurance Institution (ZUS).

The taxpayer submitted a correction to the PIT-37 annual tax return for 2014 together with an application for overpayment and demanded that the payer submit corrections to the PIT-11 information.

The tax office refused to find overpayments, and the case was put on the list of the Provincial Administrative Court in Poznań.

However, the court stated that "[...] The applicant (the insured) did not pay the social and health insurance contributions due on the remuneration paid in 2014 under contracts concluded with the [...] RR Office. Contributions were neither collected nor deducted by the payer in 2014, from the taxpayer's funds - EM These contributions, according to the letter from ZUS, expired on October 31, 2018 and were written off.

In settled case law of administrative courts it is argued that in Art. 26 sec. 1 point 2 u.p.d.o.f. the legislator literally and unequivocally determines the contributions: paid in the tax year, deducted in the tax year, paid in the tax year, collected in the tax year.

The payment, set-off, payment, and collection of the relevant contribution in a tax year is a condition for deducting it from the tax base or tax for the tax year in which it was paid. If the deduction in question could include contributions paid in periods other than the tax year, the legislator would use in the analyzed provisions the phrase: premium paid, withheld, paid, collected for the tax year or: in relation to the tax year, which, however, it did not do (cf. the judgment of the Supreme Administrative Court of 9 March 2016, file reference number II FSK 35/14, the judgment of the Voivodeship Administrative Court in Gdańsk of October 11, 2017, reference number I SA / Gd 876/17 - available on the website www.orzeczenia.nsa.gov. pl). Therefore, the authorities legitimately refused to declare an overpayment of income tax for 2014.

Finally, it should be noted that in the judgment of December 13, 2017, file ref. II FSK 3420/15, the Supreme Administrative Court found that when the contract was incorrectly qualified, this circumstance in no way modifies the resulting from Art. 27b paragraph. 1 point 1 lit. a and b and point 2 u.p.d.o.f. the principle that deductible applies to contributions actually paid (withheld, paid, collected) in a given tax year (and not for a given tax year) […] ”.

The same position was also expressed by the Provincial Administrative Court in Gorzów Wielkopolski in the judgment issued on October 21, 2020 (reference number I SA / Go 308/20).

A completely different opinion is expressed by the tax office, which claims that due to the fact that the payer of contributions will pay the outstanding contributions from his funds (without deduction from the contractor's remuneration), the contractor will generate taxable income. In addition, he will not be able to deduct ZUS contributions from the income obtained in a given year.

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It is worth mentioning that also the Supreme Administrative Court in its judgment of 27 October 2015 (reference number II FSK 1891/13) stated that the payment of overdue ZUS contributions entirely from the contribution payer's funds (without deducting from the contractor's remuneration) does not change its nature, i.e. it is still social insurance contribution. As a result, the insured contractor has the right to deduct these premiums (the part attributable to himself, in accordance with the table) from income and tax in the year of their payment by the contribution payer.

Since the tax has already been collected in the past and in a higher amount than after the contract was reclassified by ZUS (the contract was covered by social and health insurance contributions), the taxpayer had the right to deduct it for the year for which the tax was due.

If the contractor does not return overdue contributions financed on his side to the payer who paid them or returns them, then on the basis of previous court judgments there is no obligation to recognize taxable income on his side. In addition, he has the right to deduct the ZUS contributions paid (his part) in a given year: from the received income - the social part, from the tax - the health part.

Reclassification of the contract and payment of overdue social security contributions at a later date

For some time now, court judgments have shown uniformity in terms of the consequences in the settlement of ZUS contributions in the event that ZUS has questioned the contract applied by the employer.

One of such cases is the case that ended with the judgment of 3 September 2019 (reference number I SA / Bd 430/19) issued by the Provincial Administrative Court in Bydgoszcz.

A taxpayer running a business has concluded specific and indefinite specific work contracts with natural persons. Contributions from these contracts were not paid. These persons were not employees of the entrepreneur.

After the inspection, ZUS questioned the above-mentioned contracts and demanded a change of their qualifications on a mandate contract with full contribution (except for voluntary sickness).

The employer paid all overdue ZUS contributions from his own funds, but he did not claim the payment of ZUS contributions from the contractors in part financed by the contractor (distribution of ZUS contributions financing in accordance with the table presented earlier) and had doubts as to the correctness of the settlement of overdue ZUS contributions, which previously they were not accrued at all, deducted from wages and paid.

In the case in question, the Provincial Administrative Court stated that “[…] the rules specifying the method of financing contributions do not affect the obligation to pay them, which in the case of, inter alia, contributions for insured employees, is borne only by contribution payers, i.e. employers. Under Art. 17 sec. 2 and art. 46 sec. 1 u.s.u.s. Although they have the right to deduct part of the contributions for retirement, disability and sickness insurance financed by the insured from the income of the insured, they can do so only for those months in which the contributory income occurs.

The consequence of the payer's failure to collect social security contributions in a timely manner from the benefits paid to insured employees was the payment of these benefits in a higher amount and the collection of an advance on personal income tax on the total income paid, i.e. an advance payment in the amount higher than the advance payment that would be due if the payer had taken into account the contributions correctly before.

In view of the above, the payer, paying the outstanding contributions in the part due on the benefit paid to the employee, does not make any financial gain increasing the assets of the insured employees (they themselves do not receive free benefits from the payer) […] ”.

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