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500 plus: not paying tax return (PIT) or Social Insurance Institution (ZUS) contributions and still getting cash

27 Jul 2018 17:06|Marcin Lipka

“Poland is the only one out of 35 countries surveyed by the OECD where some working families do not pay taxes or social security contributions, but still receive social benefits. How is this possible?” writes Marcin Lipka, Conotoxia Senior Analyst.

Total non-taxation of our salaries combined with receiving funds from the state. This seems to be an impossible scenario. However, according to the 'Taxing Wages 2018' report prepared by the Organisation for Economic Cooperation and Development (OECD), Poland is the place where some households with two children earn higher net income than their gross earnings.

Negative income tax

The working salary on an employee basis is related to the fact that the employer pays contributions to the Social Insurance Institution (ZUS) and income tax. Usually, about 70% of our gross salary enters our bank account.

However, we can reduce our tax liability in our annual tax statement. It is possible to combine our tax return with our spouse (double tax-free allowance) and settle our accounts with child tax credit, which in the case of two is PLN 2224. ZUS costs are also deducted from our income, which reduces the final taxable income.

For a four-person household, where one adult receives the national average salary and the other does not work, the annual income is PLN 49.6 thousand according to OECD calculations. After tax deductions and benefits, the amount of tax and social insurance contributions is PLN 9644 per year for a family, i.e. less than 20% of their income.

However, these calculations do not include the 500 plus programme introduced more than 2 years ago, which brings the household (2+2) tax-free income to a level of PLN 12 thousand. As a result, for this family the real tax is negative and amounts to minus PLN 2366. Thus, they get more net (PLN 51.9 thousand) than they earn gross (PLN 49.6 thousand).

It is worth having children in Poland...

OECD studies show that in most countries families are taxed more favourably than single people. The average tax rate (tax return and social insurance institution contributions) for a single person earning a national average salary is 25.5% (in Poland it is 25.1%). On the other hand, for a 2+2 household, where only one adult receives income at a level of the national average salary, the total tax burden is 14%, but only in Poland this indicator is negative i.e. minus 4.8%.

This strong preference towards family tax also results in a relatively high standard of life for these households, especially considering that the costs of living in Poland are generally lower than abroad. The net income of an example family, already taking into account the price level, is, therefore, much higher in Poland (USD 29.1 thousand PPP - purchasing power parity) than in the countries considered to be more affluent (Czech Republic, Portugal or Slovenia). A Polish family of 2+2, where one of the spouses earns the national average, is not far away from gaining a net income equivalent to a household of the same size in Israel (USD 33.3 thousand PPP).

...but not necessarily working

Every stick has two ends. The preferential terms for a 2+2 household, where one person works, change when a spouse has a profitable job.

The fact that another adult goes to work (e.g. on a part-time basis), which increases annual income by PLN 16.5 thousand (to PLN 66 thousand), actually results in an increase in the net income for this family by only PLN 6.2 thousand (from PLN 51.9 to 58.1 thousand). This is a result of the loss of the 500 plus benefit (the income criterion for the first child) and the already used tax preference. This also means that the tax for a working spouse is over 60% in real terms. In addition, going to work is also associated with costs (clothing, commuting, meals away from home, childcare), taking up part-time employment and sharing household and professional duties is completely unprofitable in this case.


27 Jul 2018 17:06|Marcin Lipka

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