Poland Exempts Young Workers From Income Tax

As part of its wider social spending programme, in July 2019 the Polish government passed a bill which effectively abolished income tax for the majority of young workers in the country. The bill was endorsed by Poland’s parliament in early July, and will come into effect from 1 August 2019.

Addressing Labour Challenges

The exemption bill was a campaign promise of Poland’s ruling Law and Justice Party. Prime Minister Mateusz Morawiecki recently stated that Poland had “demanded too much from young people and… not helped them enough”, while Finance Minister, Marian Banaś argued that making it easier for businesses to employ workers on relatively lower wages would “allow young people to have an easier start on the job market.''

In contrast, some critics have labelled the bill a populist measure designed to win votes without addressing the main obstacles to young people entering the workforce: mainly a lack of qualifications and poor family/work-life support.

Dealing with a Skill Exodus

The new tax regime isn’t just a measure to stimulate the employment market, but also a response to the economic migration of skilled workers from Poland to western Europe, which began in the late 20th century with the fall of communism. In 2019, the exodus of young workers is threatening to damage Poland’s long-term economic growth as demographics are unbalanced and employees struggle to find personnel for critical roles. Research by the United Nations suggests that Poland’s population could drop by 40% by 2050 if the trend continues,

The tax legislation is set to benefit around two million Polish workers but, with the August deadline on the horizon, employers in Poland will need to adapt quickly to implement the new rules…

How Does the New Tax Rule Work?

Essentially, under the new rules, all workers in Poland under 26 years old are exempt from paying income tax. In more detail:

● Eligible employees are exempt from paying the standard 18% personal income tax on gross annual earnings up to 85,528 Polish zlotys (equivalent to €20,072 or around £18,000).

● Income over 85,528 zlotys will be taxed at the normal rate of 32% regardless of the employee’s age.

● Poland’s average income is estimated at around 60,000 zlotys, meaning the potential savings for young workers are significant.

● Polish entrepreneur business-owners under the age of 26 will not benefit from the income tax exemption.

Claiming Tax Exemption

Although everyone under the age of 26 qualifies, young workers won’t be adjusted to tax exempt status immediately - unless they complete an administrative process before 1 August 2019:

● To exercise their right to tax exemption immediately, employees must submit a statement to their employers that their wages for the year won’t exceed the 85,528 zlotys threshold.

● In 2019, that statement will cover the remainder of the year: accordingly, employees must declare that their wages from 1 August to 31 December will not exceed 35,636.67 zlotys (5/12 of the 85,528 zlotys allowance).

● Once the employer receives the statement they can direct their payroll to cease the deduction and withholding of income tax from the employee’s remuneration.

Alternatively, eligible employees can continue to be taxed as normal, and wait to the end of the year to receive an income tax refund after completing their 2020 tax returns. Employees who do not submit a wage statement on time will receive their exemption refund in this way.

Find out more about Polish tax and social security rules by browsing activpayroll’s dedicated Global Insight Guide to Poland.