The rules of the amount reducing the tax in practice


Taxpayers settling on general principles according to the tax scale are entitled to use the tax reduction amount they are entitled to, which is the same for everyone. However, one should remember about certain limitations specified by the legislator and the conditions that must be met in order to be able to fully apply the reduction of the liability towards the tax office.

Who is entitled to take into account the tax reduction amount?

According to the general principles of personal income tax (or progressive tax), it is possible to include in the income in the first range of the tax scale the so-called tax-reducing amount.

Therefore, only entrepreneurs running a business who settle accounts with the tax authorities on general principles are obliged to take into account the amount that reduces the tax. It will not be possible to apply the deduction if the company's settlements are based on other forms - flat tax, tax card, lump sum on revenues.

On the other hand, the second entity obliged to deduct the amount reducing the tax is the employer. Then, when calculating the employee's monthly income tax advance, he should deduct proportionally 1/12 of the said amount. However, it should be remembered that it can only be done after receiving a PIT-2 statement from the employee, before the first payment, in which he states that he meets the conditions specified in the Act.

The above-mentioned conditions are included in the Personal Income Tax Act, according to which the employee should state in the declaration that:

  • does not receive an old-age or disability pension through the payer,
  • does not receive income from membership in an agricultural production cooperative or other cooperative engaged in agricultural production,
  • does not achieve income from which it is obliged to pay advances pursuant to art. 44 sec. 3,
  • does not receive cash benefits from the employment authority or from the field office of the Guaranteed Employee Benefits Fund,
  • the establishment concerned is competent to apply this reduction.

If one of the above conditions is not met by the employee, then he or she is not entitled to the deduction of the amount reducing the tax, and therefore does not have to submit the said declaration. Failure to provide the employer with the PIT-2 form is tantamount to the lack of the right to make deductions when calculating the advance tax for the employee, and the employer cannot require him to make a declaration not to make any deductions.

Employee-entrepreneur and the amount reducing the tax

In practice, it often happens that a full-time employee also conducts business activity taxed according to the tax scale. In such a situation, the taxpayer is obliged to take into account the amount reducing the tax only for the activity conducted, because otherwise the deductions would be doubled. Such action would be incorrect, as the right to benefit from the tax reduction amount is granted to each taxpayer only once, regardless of the number of sources of income. In connection with the above, the entrepreneur should in this case report to the workplace that he resigns from the right to deductions when calculating the advance on income tax paid by the employer. The form of reporting this fact has not been regulated by the legislator, however, the appropriate solution will be to submit a written declaration.

An advantage resulting from the situation of an employee-entrepreneur conducting business activity taxed on general principles (progressive tax) is that after the end of the tax year, he can settle the income obtained from both sources on one PIT-36 tax form.