Statutory minimum wage increase in 2023

Pursuant to Hungarian Government Decree 573/2022 (23.XII.), from 1 January 2023, the monthly statutory minimum wage will increase by 16% to HUF 232,000 gross, and the guaranteed minimum wage by 14% to HUF 296,400 gross. The increase in the minimum wage implies an increase in the amount of many related benefits and allowances, but for tax bases calculated on the basis of the minimum wage, it also may result in an increase in tax liabilities. The new minimum wage and guaranteed minimum wage amounts should be applied for the first time to January 2023 wages.

Below we show how the increase in the minimum wage should affect our corporate clients for each tax category.

Personal income tax

• The teleworking cost reimbursement that can be granted tax-free without any certification is capped at 10% of the monthly minimum wage in force on the first day of the tax year. Therefore, the maximum tax-free amount should increase to HUF 23,200 (the 2022 threshold 2022 was HUF 20,000);
• Wage advances can be granted free of tax up to a five-fold monthly minimum wage in force on the day of payment (with a maximum repayment obligation of 6 months);
• The amount of the personal tax benefit is also an allowance linked to the amount of the minimum wage. Employees who suffer from the diseases listed in Government Decree 335/2009 (XII. 29.) as constituting severe disability, as well as those employees who receive disability benefits or disability allowance are entitled to the personal tax benefit. The personal tax benefit is equal to one-third of the minimum wage per month of eligibility (i.e. the amount by which the individual's consolidated tax base can be reduced), rounded up to HUF 100. In 2022, this meant a tax saving of HUF 10,000 per month. From 2023, with the increase of the minimum wage, this amount will rise to HUF 11,600 per month, which means an annual tax saving of HUF 139,200;

Social contribution tax

• for certain types of income (e.g. income withdrawn from a business, dividend income, income from exchange gains), the basis of the social contribution tax is limited to a 24-fold minimum wage (the so-called “tax payment ceiling”), which will increase to HUF 5,568,000 in 2023;
• the tax allowance for persons with reduced working capacity is also linked to the minimum wage. Their allowance should equal the 100% of the social contribution tax assessed on their tax base capped at twice the minimum wage, which means a maximum monthly saving of HUF 60,320 for their employer in 2023;
• the tax allowance for new entrants to the labour market can also be included here: no social contribution tax is payable for 2 years from the start of employment, up to a maximum of 13% of the minimum wage (thus saving the employer a maximum of HUF 30,160 per month in 2023), and in the third year the amount of the tax allowance is calculated in a similar way, but at 50% of the social contribution tax rate (saving the employer a maximum of HUF 15,080 per month in 2023);
• the tax allowance for women entering the labour market with three or more children can be claimed at the tax rate of the social contribution tax (13%) assessed on the gross wage, but up to the amount of 13% of the minimum wage in the first 3 years of employment (thus in 2023 this means a maximum monthly saving of HUF 30,160 for the employer), and then at 50% of the tax rate of the social contribution tax in the 4th and 5th years of employment.

Social security contributions

• for insured business owners (shareholders), the social security contribution base is at least the minimum monthly wage. This may apply to business owners who do not have an employment relationship with their company and perform their management duties on the basis of a contract of assignment, with little or no remuneration;
• for work performed under a contract of assignment, social security contributions are payable when the contribution base reaches 30% of the monthly minimum wage (the so-called “contribution floor”).

Corporate income tax

• certain tax base adjustments are also linked to the minimum wage. For example, for students who are enrolled in vocational training in a dual training centre under a vocational training employment contract, the employer is entitled to reduce the corporate income tax base by 24% of the minimum wage for the months in which the employment was in force. Thus, in 2023 the available tax base reduction is HUF 55 680/month/student.

Small business tax (“KIVA”)

• in the case of business owners (shareholders), 112.5% of the minimum wage (HUF 261,000 or HUF 333,450 for jobs where the guaranteed minimum wage applies) should be taken into account per month when assessing the KIVA base - if the monthly personal expenses per business owner are lower than this;

Certain allowances

• sickness benefit is set at 60% of the average daily wage and capped at one-thirtieth of twice the minimum wage. In 2022 this amount was HUF 13,333 per day, but with the increase in the minimum wage, in 2023 it will be HUF 15,467 per day;
• child care allowance (GYED) is set at 70% of the parent's previous income and capped at 70% of two-fold the minimum wage. The maximum benefit in 2022 was HUF 280,000. With the increase in the minimum wage, the benefit will rise to HUF 324,800 in 2023;
• infant care allowance (CSED) if the parent does not have either 180 calendar days' income or 120 days' income on the date of entitlement to the infant care allowance, then it should be determined at one-thirtieth of twice the minimum wage. This amount was HUF 13,333 per day in 2022. With the increase in the minimum wage, the daily rate will rise to HUF 15,467 in 2023;
• jobseeker’s allowance should be payable at the maximum daily amount of the statutory minimum wage, which was HUF 6,667 per day in 2022. With the increase in the minimum wage, the daily amount will be HUF 7,733 in 2023.

3rd January, 2023

* * *

Should you have any questions regarding this newsletter,
the tax experts of VGD Hungary will be pleased to assist you.

This newsletter provides general information and does not constitute tax advice.