Running a business involves the need to independently pay taxes on the earned income. Income tax is strictly regulated by law and practically everyone who earns any income must pay it off. In the case of employees, the employer does it on their behalf. In the case of entrepreneurs, they have to do it themselves. However, there is a certain income threshold which allows you to not pay income tax. This is known as the tax-free amount. You do not have to pay anything to reach its level, when it is exceeded, the obligation automatically appears.
Obligation to the state
Income tax is a liability that applies to anyone who earns an income. Regardless of the nature of the employment and the type of contract signed, the need to regulate the tax rests on everyone without exception. Of course, the level of receivables may vary depending on how you earn your income. The obligation itself, however, remains. Income tax may therefore be regulated on general principles or on a linear basis.
Tax regulated on general principles is a tax paid in two steps. If we earn up to PLN 85,528.00, we should pay 18% of the actually earned amount minus PLN 556.02 (tax-free amount). If the income exceeds this amount, a fee of PLN 14,839.02 plus 32% of the excess over PLN 85,528.00 should be paid to the tax office. This means that the first tax bracket is 18% and the second is 32%.
Flat tax it is a tax at the level of 19% regardless of the amount earned. Will it be below 85,000? PLN or above this amount, the tax is always at the same level. You can declare a flat tax yourself. It is the taxpayer’s decision.
Tax Free Amount
Year by year, the government determines the tax-free amount. This is an annual amount of your income that forms a kind of limit. Income obtained at a level below this amount does not require taxation, it is exempt from it. Income received above this limit is taxable. In Poland, since 2009, the tax-free amount, despite the increases and changes in the value of money, has not changed and is at the level of PLN 3,091. This means that only the surplus obtained above this amount is taxed. The tax-free amount is not taxed, even if the taxpayer exceeds it.
Example:
During the year, the income was PLN 5,000. We will calculate the tax amount based on the formula:
Income * 18% – PLN 556.02
5000 * 18% – 556.02 = 900 – 556.02 = PLN 343.98
The tax to be paid from PLN 5,000 of income is PLN 343.98. And where do these 556.02 zlotys come from? This is the tax-free amount, 3091 * 18% gives the value of PLN 556.02 and it must be secured. Despite exceeding the free amount, it cannot be charged.
Naturally, the fact that the tax-free amount has not been exceeded does not release the taxpayer from the obligation to pay the tax advance (in the case of hiring an employee) or from submitting an appropriate tax declaration. Failure to pay the tax in the case of generating income should be justified, at least with its amount and the related exemption.
Importance of tax-free amount
The tax-free amount is important primarily for every entrepreneur running a business. It allows him to keep a little more money for himself or his business. It means less financial burden for low income. At the same time, with the gradual exceeding of the exempt amount, the tax only gradually increases, which is also of great importance for the entrepreneur, because it suddenly does not burden him. The liability increases with the increase of the taxpayer’s financial capacity. In Poland, the tax-free amount is very low and amounts to only 6% of the average annual income. Unfortunately, this is a very small facilitation for entrepreneurs, but it is important that such a solution exists at all.
It is worth following the changes and decisions made by the government regarding the tax-free amount. This knowledge is extremely important both during the annual particular settlements, as well as during the summarizing annual settlements.