Simplified advance income tax payment - how to reduce it?

The simplified advance income tax payment means paying it in a fixed amount every month. It is determined on the basis of the income earned in previous years. It is not possible to change its amount during the year. However, in justified cases, it is possible to reduce the amount of the advance in a simplified form.

Both taxpayers of corporate income tax and personal income tax are obliged to pay advances on income tax during the year. To do this, they have three options to choose from:

• once a month, by the 20th day of the month following the billed month,
• quarterly, by the 20th day following the completed quarter,
• in a simplified form.

Who can settle in the form of a simplified advance income tax payment?

The simplified form of withholding income tax can be used by companies that started operating in previous years, and it does not matter whether they have the status of a small taxpayer or not. In addition, it can be used by both entrepreneurs who settle accounts according to the tax scale, as well as those taxed with a flat tax.

Simplified advance payment and the calculation basis

The simplified advance payment is calculated on the basis of the income obtained from business activity, which the entrepreneur showed in the annual tax return for the year preceding the given tax year. Another option is to calculate on the basis of the income for the year preceding the given tax year by two years, if the first of the indicated annual settlements did not show any income or its amount did not give rise to the obligation to pay tax. If no income has been shown in tax returns for the two previous years, the taxpayer cannot pay advances in a simplified form.

The income shown in the tax returns is the starting value for the determination of simplified advances according to the rules corresponding to the given form of taxation and applicable to the taxpayer in a given tax year (i.e. according to the tax scale or the flat rate).

Simplified advance payment - what does it mean?

Monthly advance income tax in the simplified form is 1/12 of the tax calculated on the established income (income shown in the tax return for the previous year or two years back). This advance payment is reduced by the health insurance contributions paid by the taxpayer in a given month. Please note that social security contributions are not deducted from your income. This is understandable as the basis for calculating advance payments is established at the beginning of the year, when the value of premiums paid during the year is not yet known. Advance payments for income tax in a simplified form cannot be paid to the tax office on a quarterly basis. They must be paid monthly.

It is important that the taxpayer is obliged to pay the simplified advance payment even in a situation when it suffers a loss in a given tax year. Thus, the income in a given year is lower than that of the previous year on the basis of which the simplified advances were established.

Reduction of the simplified advance

A simplified advance income tax payment may be reduced in justified cases. This is supported by Article 22 §2a of the Tax Ordinance, which indicates that the tax authority may limit the collection of tax advances if the taxpayer indicates that the advances calculated in accordance with the principles set out in the tax laws were too high in relation to the tax due on the income that the taxpayer provides. achieved in a given tax year.

This provision was reflected in the individual interpretation of June 3, 2013 No. ILPB1 / 415-257 / 13-2 / IM issued by the Director of the Tax Chamber in Poznań. In the case in which he was asked for an interpretation, the taxpayer already had a decision issued by the Head of the Tax Office to limit the collection of advances for personal income tax (established in a simplified form), however, he had doubts whether the advance determined by the tax authority could be reduced for health insurance premiums paid.

The director of the Tax Chamber stated that the advance payment for income tax was calculated in accordance with Art. 44 sec. 6b of the Personal Income Tax Act, while the decision issued by the tax office pursuant to Art. 22 §2a of the Tax Ordinance only limits its amount.

The Income Tax Act contains provisions that clearly indicate that the amount of the advance payment to be paid to the office may be reduced by health insurance contributions paid by the taxpayer in a given month. Hence, the tax authority assumed that the taxpayer has the right to reduce by the amount of contributions also the advance payment determined by the decision of the tax office.

It should be remembered that the discussed regulation of the Tax Ordinance applies only when the advance payment determined in accordance with the provisions of the Income Tax Act would be disproportionately high in relation to the tax due on the income that the taxpayer expects to achieve in a given tax year. This means that if the taxpayer comes to the conclusion that the calculated simplified advance will be too low in relation to the income that can be achieved in a given year, he will not be able to apply for its increase.

The taxpayer can only decide to pay to the office higher income tax advances on the calculated ones, so he will pay more income tax than the calculated simplified income tax advance. It will not be the correct procedure and you can expect a summons from the tax office to explain your conduct.