How much are the employee tax-deductible costs?

When hiring an employee under an employment contract, the taxpayer determines the amount of remuneration. It is the employee's income. He also incurs costs related to the performance of his official tasks. The above costs are deducted by the employer. How much are the tax deductible costs? We check.

Salary for work as a source of income

Pursuant to the provision of Art. 9 sec. 1 of the Act of July 26, 1991 on personal income tax, hereinafter referred to as the PIT Act, income tax is subject to all types of income, except for those listed in art. 21, 52, 52a and 52c and the income from which the tax collection was abandoned pursuant to the provisions of the Tax Code.

Pursuant to Art. 10 sec. 1 point 1 of the PIT Act, the sources of income are: business relationship, employment relationship, including a cooperative employment relationship, membership in an agricultural production cooperative or other cooperative engaged in agricultural production, outgoing work, retirement pension or disability pension.

Pursuant to Art. 12 sec. 1 of the PIT Act, all types of cash payments and the monetary value of benefits in kind or their equivalents, regardless of the source of financing these payments and benefits, and in particular: basic remuneration , remuneration for overtime, various types of allowances, awards, equivalents for unused leave and all other amounts, regardless of whether their amount has been determined in advance, and in addition, cash benefits incurred for the employee, as well as the value of other unpaid benefits or partially paid benefits .

Pursuant to Art. 9 sec. 2 of the PIT Act, income from the source of revenues, if the provisions of art. 24-25 and art. 30f do not provide otherwise, there is a surplus of the sum of revenues from this source over the costs of obtaining them in the tax year. If the tax deductible costs exceed the sum of the revenues, the difference is the loss from the source of revenues.

Tax deductible costs - what is their amount?

According to the general rule expressed in Art. 22 sec. 1 of the PIT Act, tax deductible costs are the costs incurred in order to achieve revenues or to preserve or secure their source, with the exception of the costs listed in art. 23.

Tax deductible costs are determined by the legislator. On October 1, 2019, the act amending the act on personal income tax and the act amending the act on income tax from natural persons and some other acts entered into force, according to which KUP on account of a service relationship, employment relationship, cooperative employment relationship and homework:

1. are PLN 250 per month, and for the tax year not more than PLN 3,000, if the taxpayer receives income from one business relationship, employment relationship, cooperative employment relationship and homework;
2. may not exceed a total of PLN 4,500 for the tax year, if the taxpayer obtains income simultaneously from more than one business relationship, employment relationship, cooperative employment relationship and homework;
3. are PLN 300 per month, and for the tax year not more than PLN 3 600 in total, if the taxpayer's place of permanent or temporary residence is located outside the city where the workplace is located and the taxpayer does not receive a separation allowance;
4. may not exceed a total of PLN 5,400 for the tax year, if the taxpayer obtains income simultaneously from more than one business relationship, employment relationship, cooperative employment relationship and homework, and the taxpayer's place of permanent or temporary residence is located outside the town where there is a workplace, and the taxpayer does not receive a separation allowance.

The annual limits on tax deductible costs specified above apply from 2020. However, when calculating the tax for the previous years, the tax-deductible costs for the tax year were:

1. not more than PLN 1,751 PLN 0.25 - if the taxpayer obtains income from one service relationship, employment relationship, cooperative employment relationship and homework. They also cannot exceed the total amount of PLN 2,626 PLN 54 - if the taxpayer obtains income from several contracts at the same time;
2. not more than PLN 2,151.54 - if the taxpayer's place of permanent or temporary residence is located outside the town where the workplace is located and the taxpayer does not receive an allowance for separation. They may also not exceed the total amount of PLN 3,226.92 - if the taxpayer obtains income from several titles at the same time, and the place of permanent or temporary residence of the taxpayer is located outside the city where the workplace is located, and the taxpayer does not receive a separation allowance .

Until 30/09/2019, the tax deductible costs were as follows:

1. PLN 111.25 if the taxpayer obtained income from one business relationship, employment relationship, cooperative employment relationship and homework (for the tax year not more than PLN 1,335). The costs could not exceed the total of PLN 2,005,05 for the tax year, if the taxpayer obtained revenues from several sources at the same time.
2. PLN 139.06 a month if the place of permanent or temporary residence of the taxpayer is located outside the town where the workplace is located, and the taxpayer does not receive a separation allowance (for the tax year in total not more than PLN 1668 PLN 72). The costs could not exceed a total of PLN 2502.56 for the tax year, if the taxpayer obtained income from several sources at the same time.

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Domicile

As we have noticed, the amount of the employee's tax deductible costs depends on his place of residence and the number of employment relationships. The provisions of the tax law do not specify what should be understood by the concept of "permanent" and "temporary" residence referred to in the above-mentioned recipe.

Pursuant to Art. 25 of the Act of 23 April 1964 - Civil Code, the place of residence of a natural person is the place where the person stays with the intention of permanent residence.

Pursuant to Art. 32 sec. 5 of the PIT Act, when calculating the advance payment, the workplace applies increased tax deductible costs if the employee submits a declaration that the condition specified in this provision is met. Pursuant to Art. 32 sec. 3a of the PIT Act, the declaration referred to in para. 3, shall not be made, if the facts resulting from the declaration made in previous years have not changed. Pursuant to Art. 22 sec. 13 of the Act, the provisions of para. 2 points 3 and 4 and sec. 11 shall not apply in the case where the employee receives the reimbursement of travel costs to the workplace, except when the reimbursed costs have been included in the taxable income. Below we present examples related to the subject of employee tax deductible costs and their settlements.

Example 1.

The employee was employed under two employment contracts throughout 2020. Both workplaces were located in the place of his residence. Each of the employers, when issuing the PIT-11 information, showed the amount of costs in the amount of PLN 3,000. In what amount should the costs be accounted for in PIT-37?

In such a situation, tax deductible costs in the amount of PLN 4,500 should be shown in the annual tax return.

Example 2.

The employee was employed under two employment contracts in 2019. Workplaces were located outside his place of residence. One contract lasted a full year, while the other only three months.

In such a situation, the taxpayer in the PIT-37 statement has the right to show tax deductible costs in the amount of PLN 3,226.92, despite the fact that the second contract did not last the entire year.

Example 3.

Due to the delay in wages, the employee received wages for more than one month in June (for May and June). Despite the payment of two salaries, the employer reduced the income by the tax deductible costs due in one month. Did he do the right thing?

Yes, the employer acted correctly in the presented situation. By making the annual settlement, the employee will verify the tax-deductible costs he is entitled to and deduct them in the correct amount.

Actual tax deductible costs

As we have already presented above, the costs of obtaining income from the employment relationship, in accordance with the principle set out in Art. 22 sec. 2 of the Act, were therefore specified in a flat-rate amount.

However, the legislator provided for an exception to the above principle of determining tax deductible costs. It was included in Art. 22 sec. 11 of the PIT Act. Pursuant to this provision, if the annual tax deductible costs referred to in para.2, are lower than the expenses for commuting to the establishment or workplaces by means of bus, rail, ferry or public transport, in the annual tax settlement, these costs may be accepted by the employee or by the employee's payer in the amount of actually incurred expenses, documented only with personal periodic tickets .

Grammatical interpretation of art. 22 sec. 11 of the PIT Act indicates that the taxpayer may accept the costs of obtaining income from the employment relationship in the amount actually incurred only if the following conditions are also met:

1. the expenses relate to travel to the workplace or workplaces by means of transport indicated in this provision,
2. they were actually incurred by the taxpayer and are higher than the statutory flat-rate costs,
3. have been documented only with personal season tickets.

Example 4.

The employee was employed outside the place of residence throughout the year. From April to September, he bought personalized public transport tickets. He did not buy tickets during the rest of the year. In such a case, will he be able to include the expenses for the above tickets in the annual settlement?

For the whole year, either the flat-rate or the actual costs apply. Thus, we cannot show in the tax return the flat-rate costs for part of the year and the costs actually incurred. At the same time, if the annual tax deductible costs are lower than the expenses incurred by the taxpayer for a period of 6 months for commuting to the workplace by means of bus, rail, ferry or public transport, then in the annual settlement it may accept these higher costs. This means that we can assume costs that are higher in the annual settlement.