How to settle entrepreneur's social contributions in taxes?
When you calculate the amount of tax you can take account of contributions paid to the social security (old-age, disability, sickness, accident) paid to ZUS. Settlement of those contributions depends on the type of insurance and the type of taxation (general rules, linear tax, lump sum, tax card).
Settlement under the general rules (tax scale or linear tax)
If you settle under general rules, you have two options of settlement of social security contributions:
- you may deduct paid in a given year social security contributions (old-age, disability, sickness and accident) from income (i.e. from the tax base) gained in a given year
- or include paid contributions to the costs of obtaining the revenue.
Remember! Contributions may be deducted from income only if not treated as tax-deductible costs (e.g. they have not been reimbursed to you in any form). The second important principle for the deduction of social security contributions is that these contributions may not be deducted from income (or the costs — depending on the choice of settlement method) until they are paid!
The right to deduct paid social security contributions from the income taxed according to the tax scale does not apply if:
- the basis of their assessment is income (revenue) exempt from tax under the Personal Income Tax Act or subject to tax collection waiver under the provisions of the Tax Code or
- these contributions were treated as tax-deductible costs or deducted from income pursuant to the Act on lump sum tax or returned to the taxable person in any form.
What to do if your income is lower than the contributions?
- In case of the deduction of contributions from income
If you deduct social security contributions from income, but it is lower than the amount of contributions paid and possible to deduct, you may deduct contributions only up to the amount of income obtained for the tax year in question. In practice this means that when income is lower than contributions, you can deduct only part of the contributions paid, as the rest will not be covered by earned income. The rest of the contributions cannot be deducted from income the following year. This is because the difference between the income gained and social security contributions paid does not constitute a loss which you could settle. A loss arises only if the costs exceed the sum of revenues. Learn more about the settlement of loss.
- In the case of recognizing contributions against costs
If you use method of accounting social security to costs, and paid contributions will be higher than revenues, the loss may be deducted from income in the next five years.
Both the deduction of contributions from income and taking them into account in the operating costs is conditional upon payment of contributions to ZUS. This means that you can, for example, deduct from income for the given year social contributions for the previous year (outstanding) paid in a given year.
Deduction of late contributions when calculating the advance tax payment
During a given tax year, you have the right to deduct from income paid social security contributions when calculating monthly advances on tax. When calculating advances on income tax, you may deduct from income the contributions paid in the previous months of the year, but so far not deducted because of too low income.
Settlement on the basis of lump sum on registered income
The taxable amount in respect of a lump sum on registered income is revenue, but without reducing it by the operating expenses. If you settle in the form of lump sum, social insurance contributions can only be deducted from income, in this way reducing the tax base.
What to do if revenues are lower than contributions?
Importantly, during the year, in the monthly accounts, you may deduct from income not only contributions paid in the month concerned, but also the contributions paid in the previous months of the year if you did not have the possibility to deduct them due to too low revenues.
If during the year the sum of contributions paid exceeds the revenue, surplus is lost, and it will not be possible to deduct income in the following tax year.
Settlement of tax on the basis of a tax card
If you settle in the form of tax card, you pay tax irrespective of income. Social security contributions are not therefore settled in this form of taxation. Unless you conduct activity and have another source of income.
Several sources of income — the possibilty to settle social contributions
If you conduct business and you work as an employee, for example, you should know that provisions allow the deduction of social security contributions paid in respect of business activity from income (revenue) from any other source than activity, for example, income derived from work as an employee. How to settle in this situation? When settling tax on the income generated from work in the PIT-36 or PIT-37 tax return you can reduce income by paid social insurance contributions by virtue of conducting economic activity. Remember, however, that you may not settle contributions twice.