Who will be entitled to relief from the payment of social security contributions of a homemaker and under what rules? What will be the obligations of homemakers as payers?

As of November 1, 2005, there will be provisions authorizing the reduction of personal income tax by the incurred and documented expenses for the payment of social security contributions of an unemployed household employee. This entitlement will be available to those employing housekeepers or those caring for a child, elderly or sick person. The introduction of the relief is expected to help create new jobs in households and stimulate and perpetuate interest in using third-party help to run such households. The new regulation is intended to encourage the legal employment of people for whom doing this kind of paid work is the only occupation. The legislator's intention is that in the future the operation of households will be a permanent segment of the labor market.
The new relief was introduced into the p.d.o.f. Act (Art. 27e ) by a provision in Art. 2(2) of the Act of July 28, 2005, amending the Act on employment promotion and labor market institutions and amending certain other acts (Dz.U. No. 164, item 1366). The same act added the provisions of Articles 61b - 61d to the Act of April 20, 2004 on employment promotion and labor market institutions (Dz.U. No. 99, item 1001, as amended), regulating in detail the principles of employment support for households. The new relief will also be available to those earning income subject to taxation as a lump sum on registered income.

Entitlement to relief

The regulations strictly define who is a household head and what is meant by gainful employment in the household.
A person who runs a household is a person:
1) jointly residing and farming with others in such a household,
2) a single-person household leader
- who has informed the district labor office with jurisdiction over the location of that household of the possibility of the unemployed person taking up gainful employment in his/her household and of its requirements for entrusting such person with gainful employment in the household, or is a party to an agreement concluded with the unemployed person for this purpose.
Domestic gainful employment is to perform, for the benefit of persons living and farming together in such a household, household activities or care for a person living in the household. However, it is not permissible to entrust, as part of household work, activities that serve the needs of the economic activity carried out by a person living in the household. Entrusting such work is also not permissible if the business activity is carried out in premises located in such a household.
The relief will be available to a person who has entered into an agreement with a unemployed. An unemployed person, according to the amended Article 2, paragraph 1, item. 2 of the Law on Promotion of Employment and Labor Market Institutions - is considered a person who is not employed and does not perform other gainful work, capable and ready to take up employment on a full-time basis in a given profession or service or other gainful work, or if he is a disabled person, capable and ready to take up employment on at least half of that time, not attending school, with the exception of a student at an adult school or taking an extramural examination in the field of this school or at a higher education institution in the evening, extramural or extramural system, registered in the district labor office competent for the place of permanent or temporary registration, and seeking employment or other gainful employment, while meeting further specific conditions set forth in the wording of this provision. A district labor office may direct an unemployed person to perform gainful employment in a household if, as a result of a proposal from the district labor office or on his own initiative, he has previously expressed his readiness to undertake gainful employment in a household by making a statement to this effect.

Conditions for taking advantage of the relief

The basic condition for taking advantage of the relief is to conclude a activation agreement With an unemployed person to perform gainful employment in the household.
An activation contract is a contract for the provision of services, to which, in accordance with the provisions of the Act of April 23, 1964. - Civil Code (Journal of Laws No. 16, item 93, as amended), the provisions on assignment shall apply. The activation contract shall be concluded in writing.
The district labor office provides a model activation agreement to household managers and unemployed persons who have expressed their willingness to take up gainful employment in the household.
In order to qualify for the relief, the activation contract should last for a continuous period of 12 months.

Example:
If Monika Z. employs a housekeeper as of June 1, 2006 - under the terms outlined above, she will only be able to take advantage of the relief in question on her 2007 tax return.

The regulations further prohibit:
1) the unemployed person remains a party to more than one activation contract;
2) conclusion of an activation agreement between persons related to each other to the second degree or affinity to the second degree.

Example:
A mother cannot enter into an activation contract with her own daughter for caregiving, and conversely, a daughter cannot hire her mother as a domestic helper.

The conclusion of the contract should be reported to the district labor office with jurisdiction over the unemployed person's place of residence or stay (A copy of the concluded agreement shall be attached to the notification). The notification shall be made by the person in charge of the household that has concluded such an agreement. The district labor office keeps a register of activation contracts.
The condition for taking advantage of the tax credit is to have a certificate from the district labor office confirming that an activation agreement has been concluded. Accordingly, the district labor office shall issue a certificate to the household head who has entered into an activation contract, confirming the registration of this contract in order to document eligibility for tax deductions.

Worth knowing:
Provisions introducing the new relief to the p.d.o.f. law will be in effect as of November 1, 2005. On the other hand, the provisions of Articles 61b-61d of the Act of April 20, 2004 on employment promotion and labor market institutions (Dz.U. No. 99, item 1001, as amended), which regulate the principles of supporting the employment of the unemployed in households, will not take effect until January 1, 2006. In this situation, there is a doubt whether activation contracts can be registered from November 1, 2005 or January 1, 2006.

The condition for taking advantage of the relief is, of course, also to incur expenses from their own funds to pay social security contributions for a person employed under an activation contract, specified in the October 13, 1998 law on the social insurance system.

Tax deduction

The relief consists in the possibility of tax deductions expenses incurred by the household head for paying from his own funds the social security contributions of the employed person.
The deduction is made in the tax return filed for the tax year in which the required uninterrupted period of the activation agreement has elapsed (12 months). Thus, for the first time, it will be possible to reduce tax by the expenses of paying social security contributions of an employed person in the annual return filed for 2006, that is, by April 30, 2007.
The deduction applies if social security expenses:
have been documented with evidence that they were incurred,
were not deducted under the Law on Flat Income Tax.
In practice, evidence of social security expenses is bank statements or postage receipts.

Rules for collecting advance payments

The added Article 35a of the Law on p.d.o.f. sets forth the rules for calculating and remitting advance tax payments by a household head employing an unemployed person under an activation contract.
The homemaker is obliged, as the payer, to collect monthly advance income tax in the amount of 19% of the amount due under the activation agreement.
When calculating the advance payment is taken into account:
1) tax-deductible expenses in the amount of 20% of earned income, as referred to in Article 22(9)(4) of the p.d.o.f. Act,
2)social security contributions, deducted in a given month, in accordance with the provisions of the social security system.
The advance thus calculated is further reduced by the amount:
1) referred to in Article 32(3) of the Law on p.d.o.f., that is, by an amount equal to 1/12 of the tax-reducing amount specified in the first bracket of the applicable tax scale,
2) health insurance premiums collected in a given month in accordance with the provisions on health care services financed from public funds, subject to Article 27b (1) (2) and (2) of the Law on p.d.o.f.
The amounts of collected advance tax payments shall be transferred by the 20th of the month following the month in which the advance payments were collected, to the account of the tax office, which is headed by the head of the tax office competent according to the place of residence of the payer, at the same time sending a declaration according to the established model.
In addition, by the end of February of the year following the tax year, the payer is obliged to send to the taxpayer and to the tax office headed by the head of the tax office competent according to the taxpayer's place of residence - a personal information on the amount of income, prepared according to the established formula.
The models of the relevant declarations and registered information will be determined by the Minister of Finance by decree.

Legal basis: Act of July 26, 1991 on Personal Income Tax (Journal of Laws No. 14, item 176, as amended), Act of April 20, 2004 on Employment Promotion and Labor Market Institutions (Journal of Laws No. 99, item 1001, as amended), Act of July 28, 2005 on Amending the Act on Employment Promotion and Labor Market Institutions and Amending Certain Other Acts (Journal of Laws No. 164, item 1366).