Personal income tax waived for those under 25 in Hungary

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Personal income tax waived for those under 25 in Hungary

Starting from 2022, people under 25 do not pay personal income tax in Hungary. The new regulation aims at making the employment of young people more attractive to employers, while giving young people a boost in getting independent and starting their own life.

Personal income tax benefit of young people from 2022

Under the new regulation, young people (under the age of 25) will not be paying the 15% personal income tax in Hungary starting from 2022. More precisely, this includes income paid out

  • for any period after 31 December 2021 (basically your monthly salary, with the first month being January 2022); or
  • after 10 January 2022, even if it pertains to 2021 (for example, a year-end bonus if it is paid in January; the 10 January divide ensures this will not be a salary for December 2021, since salaries must be paid by the 10th of the month following the reference month).

Since in Hungary taxes are paid by the employer and employees only receive their net salary, this means that employers must make the necessary adjustments in their payroll calculation, and pay their young employees their salary without deducting the 15% personal income tax.

The new regulation makes student work even more attractive to both employers and students. Student work done through student work organizations is already not subject to contributions. Now that students under 25 will not be paying the personal income tax, their net salary will be same as their gross salary.

The personal income tax benefit is available for everyone working and paying taxes in Hungary, and for all kinds of income, whether it is from employment or other gainful activity, like company operation or being a primary provider in agriculture. The tax benefit also applies if an employee works only a few hours in a given months, which is typical for student jobs.

Limitations on the income tax benefit

Young people can take advantage of the income tax benefit until the month they reach the age of 25. For example: if your young employee’s 25th birthday is on 5 March, the last month the income tax benefit applies to their salary is March.

The income tax benefit is maximized by the gross average salary in July of the year before the reference year. In July 2021, the gross average salary in Hungary was HUF 433,700 (ca. EUR 1,200). As a result, your young employee pays no personal income tax in 2022 if their gross salary is below that. If it is higher than that, they pay the tax after the part above HUF 433,700.

This means a salary boost up to HUF 65,000 (ca. EUR 180) / month, or HUF 780,000 (ca. EUR 2,160) throughout 2022 – without any additional burdens on the employer.

Effects on Hungarian economy

The new tax benefit of young people can give a boost to the salary of around 1.15 million people working in Hungary (this is the number of people between the ages 15 and 25, as the lowest age for starting to work is 15) without additionally burdening employers. This is just one of a set of measures that are supposed to boost the economy – with this step by making the employment of young people financially more attractive to employers, while giving young people a boost in starting their own life, which in turn will promote an increase to the circulation of capital. This means that even though the personal income tax benefit of young adults will create a loss in the public budget revenues, part of that loss will be recovered through taxes (such as VAT).

Check with your payroll specialist if they are prepared for the change

As an employer, it is your responsibility to ensure that your employees under 25 receive a n increased salary thanks to the income tax benefit starting from January 2022. Most accountants and payroll specialists use dedicated software to make sure benefits and allowances are calculated precisely – but when a major change like this is introduced, it is good practice to check up on implementation.

Helpers Finance also uses up-to-date software to and expertise gained over years of precise work to keep your books in order, and help you make accurate projections and informed decisions for your Hungarian company. Can we help you? Fill in our form, write an email, or call our office now.

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