The personal income tax benefit for young people under the age of 25 has been accepted

The Hungarian Parliament passed an amendment to the Personal Income Tax Act (hereinafter: the “Act”), so the personal income tax benefit for young people under 25 was accepted. In this newsletter, we present the most important details of this amendment.

Contrary to the news in the media, the now accepted amendment will not result in a full tax exemption for individuals under the age of 25 (in the wording of the Act: “young people”).

On the one hand, according to the adopted amendment, the young people can only reduce their income from work, which belongs to the consolidated tax base, with the so-called “benefit for young people under the age of 25”. This benefit can be applied after the benefit for mothers raising 4 or more children, but before the personal benefit, the first couple benefit and the family benefit. In connection with other taxable incomes (e.g. dividends or rental of real estate) from activities not listed in the relevant part of the Act, the young person is taxed in the same way as s/he would otherwise be.

On the other hand, even in the case of income from work, the reduction cannot be used indefinitely. To determine the annual value of the ceiling, two things need to be taken into account:

• the number of eligible months for the young person concerned in that year; and
• the average gross earnings of full-time employees officially published by the Hungarian Central Statistical Office (abbreviated in Hungarian as “KSH”) for the month of July of the year preceding the reference year.

With regard to the months of eligibility, the Act decides that the last such month is in which the young person reaches the age of 25. Consequently, in the year in which the young person reaches the age of 25, the upper limit must be proportional to the number of months of entitlement and thus to the amount of benefit available (e.g. in 2022 for a young person born in May 1997, the rate is 5/12, in the case of a person born in July 1997, 7/12, etc.).

The other condition, the gross average earnings, is not known at the moment, as it will only be published by the KSH only after July 2021 (the Act will enter into force on 1 January 2022, so July 2021 of the year preceding the reference year in question). Thus, it is only interesting to mention that in July 2020, the average gross earnings were HUF 401,800 (approx. EUR 1,100).

The application of the benefit is automatic, the young person’s employer or the regular contributor to the young person’s consolidated tax base automatically reduces the young person’s tax advance base by the amount of the benefit per month of entitlement.

However, the Act also provides the possibility for the young person to ask his / her employer or the payer in a declaration, indicating the specific amount, to waive the benefit for him / her in respect of the amount in question. This is in the interest of the young person if, in the absence of such a statement, the difference in payment would arise for the entire tax year and it would exceed HUF 10,000 (approx. EUR 28). In case of such difference, the young person can be fined 12%.

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Should you have any further questions regarding the newly adopted amendment, our tax experts are gladly at your disposal.

This newsletter is for general information only and should not be considered as tax advice