Comprehensive personal income tax refund in Hungary for families in February 2022?

Important details with examples!

Last week, the government decided on the details of next year's planned refund of the in 2021 paid personal income tax to families with children. The family tax refund is conditional on the Hungarian economy growing by 5.5 percent this year, which is currently expected to be achieved.

While the exact details are not yet known, the announcements have provided the following information:

• The government will refund the in 2021 paid personal income tax to families with children until the end of February 2022
• Refunds are expected to be available to all parents with children who are entitled to family support
• If both parents in the family have a registered job, both parents will be refunded the paid personal income tax 
  The upper limit for the refund will be the average wage in 2021, which was HUF 436.300 (gross) in June 2021, so the maximum amount of the refund will be HUF 785.340 per person
• The regulation will affect 1.9 million people and cost the budget HUF 600 billion
• Entrepreneurs will also benefit from the refund: KATA taxpayers will receive a quarter of the flat-rate tax refund (this means a refund of HUF 225.000 if they pay HUF 75.000 KATA per month and HUF 150.000 if they pay HUF 50.000 KATA per month), while ekho taxpayers will receive a refund of two thirds of the 15% tax paid
• Self-employed farmers will also get a refund of their paid personal income tax
• In addition, paid personal income tax by families on the rental of property may also be refunded

According to the Finance Minister's announcement, everyone will receive a refund of the amount of actually paid personal income tax, which in our reading means that the maximum refund will be paid in case the family tax credit is not claimed during the year. If the family tax credit was claimed during the year, the amount of the refund will be reduced by the amount of the tax credit.

As mentioned earlier, the exact details of the rules are not yet known, but we wanted to give some preliminary estimates of how the amount of the refund for one- and two-earner families might vary depending on the number of children. Our calculations are based on the minimum wage, the guaranteed minimum wage, the average gross income in June 2021 and a monthly income above the average income.

In the above table, we have calculated the amount of the refund for family with parents earning minimum wage can expect in the case of only one earner (e.g. father working, mother with a child under 3; divorced parents, one parent raising the children alone; father working, mother receiving the 4 child exemption) and in the case of both parents working (for simplicity, we have calculated that both parents earn the same amount).

The table shows that, in the case of the minimum wage, only those with one child in a single-earner family and those with one and two children in a two-earner family are expected to receive a refund in February, because in the other cases, no tax was payable during the year due to the claiming of the family tax allowance.

In the case of a guaranteed minimum wage, the amount of the refund is higher, but in this case, too, those with one or two children can count on the February refund.

Parents with average gross earnings of HUF 436.300 (average in June 2021) can claim the maximum refund!

The table shows that the highest refunds are for single and two-earner families with two children. But at this level of income, even two-earner families with three children can expect a significant refund.

We have also prepared a table for the case where the parents' monthly income is above the average, but since the amount of the refund is capped at HUF 785.340 based on our calculation, the amount of the refund in this case is equal to the amount of the refund for those with average earnings.

As the details of the rules are not yet known, our table is based on the information we have so far, and the final amount of refunds may be different.

It is assumed that the rules for the family tax allowance and the family contribution allowance, as well as the rules for other personal income tax refunds that can be claimed in addition to these, will also be amended in line with the refund regulation.

Please also note that those who in previous years claimed a 20 % refund on contributions to health insurance, voluntary pension funds and pension insurance and pension savings accounts, up to a maximum of HUF 280.000 per year, may not be able to claim these benefits for 2021, as there will be no personal income tax base to apply to after the refund.

Budapest, 29, September, 2021

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The expert team of VGD Hungary is at your disposal in case of any questions.