Working from home allowance and your personal income tax

Reading time: 5 min.

Karolina BARTKOWIAK
Tax Supervisor at RSM Poland

 

As we have already discussed it in our earlier articles, in the wake of the introduction of the coronavirus epidemic state in 2020, provisions of the Act of 2 March 2020 on Special Solutions Related to Preventing, Counteracting and Combating COVID-19, Other Infectious Diseases and Emergency Situations Caused by Them (known as the Special Act) came into force. The aforementioned regulations provide for the possibility of an employer ordering an employee to work from home. This possibility covers only the period of an epidemic state, state of epidemic emergency and 3 months after there are revoked. What should be noted, however, is that remote work can be performed after the said periods, as well, if only pursuant to the provisions of the Labour Code (under what is known as telework).

And here both employers and employees tend to have concerns whether any possible allowances or compensations paid to the employee for – increasingly popular – working from home (such as, for example, an allowance for using a private Internet connection or increased electricity, water or heating consumption) constitute taxable income for personal income tax purposes for the employee. It is also important for foreign entities employing their staff in Poland.

When answering this question, you have to consider the period when remote work is being performed.

Working from home during a state of epidemic, state of epidemic emergency and 3 months after they are revoked

As mentioned earlier, working from home during a state of epidemic, state of epidemic emergency and 3 months after they are revoked can be performed on the basis of the provisions of the Special Act. Pursuant to Article 3 sec. 4 of the Special Act, any and all tools and materials necessary for working remotely as well as the logistical support of remote work shall be provided by the employer. However, the legislator has stated that the employee can use tools and materials that have not been provided by the employer provided that confidential information and other secrets protected by law remain respected and protected.

Thus, under the regulation, the employer shall only be obliged to provide the employee with tools and materials necessary for working remotely. The way they are provided, i.e. whether in kind or through an allowance for the use of employee’s tools and materials, is not of any relevance.

It should therefore be assumed that any allowances paid by the employer to the employee for working from home (e.g. for increased costs of electricity consumption or using a private Internet connection) shall be understood as fulfilment of the obligations under the Special Act. For this reason, these amounts shall not constitute taxable income for PIT purposes on the part of the employee. This position has been confirmed by the Director of the National Revenue Information in the individual interpretation dated 18 February 2022, no 0113-KDIPT2-3.4011.1095.2021.1.NM. What follows is that any amount paid during a state of epidemic, state of SARS-CoV-2 emergency or during 3 months after they are revoked shall also not constitute the calculation basis for retirement and disability insurance contributions (cf. Social Insurance Institution interpretation dated 20 May 2021 DI/100000/43/283/2021.

Working from home as a permanent arrangement

However, what if working from home becomes a permanent arrangement (i.e. continues once the state of epidemic, state of epidemic emergency was revoked and after 3 months later)? Well, in such case you need to invoke Article 21 sec. 1 item 13 of the Act of 26 July 1991 on Personal Income Tax (hereinafter: PIT Act).

According to this provision, any cash allowances for tools, materials or equipment owned and used by the employee for working remotely shall be exempt from income tax.

For this exemption to apply, the following conditions must all be met:

·        the allowance is paid in cash;

·        the amount of the allowance should correspond to the expenditure incurred by the employee (and this requires relevant documentation to be kept);

·        tools, materials or equipment must be owned by the employee;

·        tools, materials or equipment belonging to the employee must be used by the employee in the course of performing work for the employer.

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If the above prerequisites are met, the allowance received by the employee for working remotely will constitute income from the employment relationship for the employee, but it will be exempt from PIT. The employer will therefore not be obliged to calculate and remit any advance personal income tax payment to the tax office. This view was presented, among others, in the individual interpretation of the Director of the National Revenue Information dated 2 May 2022, no 0114-KDIP2-2.4011.209.2022.1.IN.

However, you need to be aware of the fact that the protective power of any individual interpretation applies only to the entity for which a given interpretation has been issued. Therefore, if employers are planning to introduce either remote working or a hybrid work model as a permanent arrangement and pay additional allowances (such as reimbursement of costs of electricity, heating and water consumption or costs of using a private Internet connection) to their employees, we suggest you submit a request for an individual interpretation in this respect. Should you have any questions or doubts, please do not hesitate to contact us.

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