While personal income tax in Hungary is 15% for everyone, various tax benefits may be applied to that based on age, marital status, and other circumstances. Get an overview of the most important tax benefits below so you will know when you or your employees can get more out of your gross salary.
Personal income tax in Hungary
While personal income tax must be reported and paid only once a year, normally you pay advances on it throughout the year. This is done by employers automatically: whenever salary is due, the employer deducts taxes and forwards them to the Tax Authority, so employees receive only their net salary. This way, when the tax returns season comes, most people will not actually have much to reclaim, and they only need to confirm the data already known to the Tax Authority.
Personal income tax benefits in Hungary
You might be eligible for more than one type of personal income tax benefit in Hungary at the same time. If these benefits apply to you, you should notify your accountant (or if you are an employee, your employer) so they can include the relevant benefits in your payroll calculations. Tax benefits are applied in the following order:
1. Tax benefit for the mother of four (NÉTAK)
Women who are raising four or more children do not have to pay the 15% personal income tax after most of their income, such as their salary or their entrepreneurial withdrawals. The benefit applies to adopted children too. Learn more here.
2. Tax benefit for those under 25
People under 25 do not pay personal income tax in Hungary. This intends to encourage employers to hire career entrants, while it also makes work through student organizations even more attractive to both students and employers. Learn more here.
3. Tax benefit of mothers under 30
If a woman between 25 and 30 becomes eligible for receiving the family allowance after 31 December 2022, the personal income tax after their salary to the amount of last year’s average income may be waived. In 2023, this means applying a tax benefit of at most HUF 74,993 to their income. Learn more here in Hungarian.
4. Disability benefit
The personal income tax base of people with disabilities may be reduced with the third of the monthly minimum wage each month, meaning HUF 77,300 in 2023. Eligibility is based on a doctor’s notice on a court decision on eligibility for relevant allowances. Learn more here in Hungarian.
5. Tax benefit of newlyweds
The personal income tax base of newlyweds may be reduced by HUF 33,335 every month, amounting to HUF 5,000 in savings each time. The benefit may be applied to the income of one of the parties in the first 24 months of the marriage if it is the first marriage of at least one of the parties. The benefit may be applied to registered partnerships too. Learn more here in Hungarian.
6. Family tax benefit
The personal income tax base of parents raising children may be reduced depending on the number of eligible children. The benefit may be applied to the income of one parent, or shared between parents. The spouses of divorced parents may also be eligible. Learn more here.
7. Family contribution benefit
In case the parent cannot apply the family tax benefit to their personal income tax, part of it can also be applied to their social security contribution. Learn more here in Hungarian.
Alternative tax benefits
Besides personal income tax benefits, taxes on various types of income may also be reduced by choosing alternative tax regimes, alternative forms of compensation, or specific forms of savings.
A. EKHO for creative professions
People employed in creative jobs may choose to pay EKHO at 15.5% instead of personal income tax (15%) and social security contribution (18.5%) for their salary above the minimum wage. Please note that the application of this tax regime is limited to specific professions; always consult your accountant. Learn more about EKHO here.
B. Fringe benefits
Apart from their salary, employees may also receive “non-salary compensation”, which is taxed more favorably compared to taxes on regular income. This intends to improve the life of employees while boosting certain sections of the Hungarian economy while reducing the burden of employers. Creating a fringe benefit plan for your Hungarian company may or may not worth the hassle, thought; make sure to consult your accountant well in advance before intending to introduce such a scheme. Learn more about fringe benefits here.
C. Healthcare and pension funds
If you are a member of a healthcare or a pension fund, you can reclaim 20% (at most HUF 150,000) of the sum paid to the fund throughout the year when you are submitting your yearly personal income tax returns. (If your tax benefits have been applied consistently throughout the year, this is the only tax return you should actually expect.) Employers may also decide to manage such payments as fringe benefits; consult your accountant to learn more.
Your payroll in good hands
The services of Helpers Finance include payroll administration for your employees at your Hungarian company. Naturally, personal income tax benefits will be considered when salaries and payroll taxes are calculated. However, please note that accountants must be made aware of the eligibility of your employees in time. With the above list, we hope it will be easier for you to create a workflow to let employees report a change in their life that might be relevant for their taxes.
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