The parameter specified as the prerequisite of personal income tax refunds, a GDP growth exceeding 5.5 per cent in 2021, already seems to be fulfilled. Having read the recently published detailed rules*, both taxpayers and employers can see more clearly which data reporting deadlines have been brought forward or have been added with respect to the collecting and reporting of the data required for obtaining a tax refund. Based on the data available to and received by the tax authority, it will be able to calculate the amount of personal income tax refunds to be paid in February.
The first threshold for the personal income tax refund was set by the regulators as 12 times the gross average income in December 2021 (HUF 449,400)** and eligibility was tied to the family tax relief. The number of affected individuals may be nearly 2 million; employees and sole traders eligible for family tax relief may equally receive a personal income tax refund.
The tax refund will be payable to both parents in a family; if they both have registered employment, they will both receive a refund of their 2021 tax. Those eligible for family tax relief on any day of 2021, regardless of whether they actually claimed the tax relief or not, will be entitled to receive a tax refund. Sole traders subject to the KATA tax (itemised tax of small business taxpayers) may be refunded a quarter of the itemised tax they paid in 2021, while taxpayers subject to the EKHO tax (simplified public burden contribution) may be refunded nearly two-thirds of the taxes paid this year.
What are the tasks of employers in connection with the personal income tax refunds?
According to the plans, the tax refund will be payable before the tax calculation and personal income tax return submission deadline pertaining to 2021 taxes. Therefore, the regulation has brought forward the deadline of the data reporting obligation compared to the usual deadline in order to obtain the necessary data on time. As a result, employers are required to issue the certificates on tax reliefs and hand them over to the employees by 20 January instead of 31 January. The certicate on the tax reliefs will show if the private individual in question has received a family benefit during the year.
The State Treasury is required to send data to the Hungarian Tax Authority on the taxpayers to whom it disbursed family benefits by the 5th day of the month following each reference month.
Who are the taxpayers that have to take special steps in connection with the tax refund?
The data collection process is less problematic in the case of Hungarian employees receiving regular income from a Hungarian employer. HOWEVER, many taxpayers, such as parents receiving and paying taxes on income from foreign employers or taxpayers subject to the KATA or EKHO taxes individually submit their data, which are unavailable from any other official registry, to the Hungarian Tax Authority.
In order to ensure that all affected taxpayers are able to take advantage of the personal income tax refund, a special option for submitting a declaration will be made available, which can be utilised by 31 December 2021. Employees paying personal income tax, as well as taxpayers subject to EKHO or KATA taxes can all submit such declarations. Those affected can submit the declaration either electronically or as a hard copy in a way that ensures that their data can reach the Hungarian Tax Authority on time. Through the submission of this special declaration, the affected private individuals, whose refund cannot be calculated based on the data available to the Authority (e.g. parents expecting a child) can receive their payments earlier.
Taxpayers who fail to meet the deadline for the submission of the declaration will not receive a tax refund in February. However, they will not lose their right to the refund in this case either; such taxpayers will be able to enforce their right to the tax refund via a post-factum procedure. There will also be a possibility for the Hungarian Tax Authority to disburse the tax relief following the amendment and acceptance of the draft return for personal income tax if this is requested by the private individual in the tax return or its draft version.
In the case of parents eligible for family tax relief, it is already worth performing a calculation to find out whether they would be able to receive a higher tax refund if they reallocated their family tax relief. The amendment of the tax relief declaration, and thus the reallocation of the family tax relief for the given period, will also be possible in the period between November and December 2021 as well. However, if the eligible taxpayers do not take advantage of the reallocation, they will also have the option to reallocate their family tax relief in their annual tax return as well, thus being able to claim the highest amount of tax refund possible. In this case, the entitled taxpayers will receive their tax refund in a post factum manner.
What is the upper threshold of the tax refund?
The upper threshold of the tax refund is HUF 809,000 based on the upper income threshold.
The income falling within the scope of the combined tax base includes premiums and bonuses as well, among others. Employees may be refunded the personal income tax paid on these as well, provided that the bonus or reward was paid to them between 10 January 2021 and 10 January 2022.
Taxpayers subject to the EKHO tax may be refunded the personal income tax portion of the tax they paid, which constitutes 9.5 per cent of the total 15 per cent EKHO tax paid. Therefore, in this case, the tax relief may affect almost two-thirds of the taxes paid.
Those subject to the KATA tax may be refunded one-quarter of the lump sum tax paid. Thus in the case of KATA taxpayers in full-time employment, the refund can reach a sum of HUF 150 thousand or even 225 thousand per year, depending on the amount of taxes paid.
Who are eligible for personal income tax refunds?
The personal income tax refunds will be received by those eligible for family tax relief (even if they do not enforce their right to family tax relief). This provision expanded the scope of the relief to families with an at least 91-day-old foetus as well.
Pursuant to the regulation, the following individuals are eligible for family tax relief:
- biological parents,
- adoptive parents,
- spouses living in the same household as a parent,
- individuals who wish to adopt a child being raised in their own household and the relevant proceeding is already underway,
- foster parents,
- professional foster parents,
- guardians, and
- any individual whose care a child is temporarily placed in pursuant to the act on the protection of children and the administration of guardianship.
Naturally, the family tax relief itself also affects the amount available to claim as a personal income tax refund; only the amount paid as personal income tax after the deduction of the tax relief will be available to claim. Since a wide scope of employers is affected by the option to claim a personal income tax refund, employers also have to prepare for the related administrative and data reporting tasks and changes in advance.