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Personal Income Tax Changes In Hungary
Amendments to personal income tax laws passed the Hungarian Parliament in November last year, and came into effect on 1 January 2016.
The main purpose of the amendments is to support the Hungarian Government’s priorities of economic growth and state budget stability. Therefore, there are no major structural changes which were characteristic of previous years but rather small adjustments that are intended to decrease the administrative burden of taxpayers and showcase a business ‘friendly’ Tax Authority.
Here are the most important changes in relation to income from employment:
Personal Income Tax (PIT)
The most important change from the private individual’s point of view is that the flat rate of PIT is reduced by 1% - from 16% to 15%. The decrease in personal income tax also affects the employer’s burden on benefits in kind, which is now decreased by 1.19% (from 35,70% to 34,51%).
Another favourable change which has been in effect since 1 August 2015 is that parents living within the administrative boundary of their workplace, with children attending pre-school or nursery care, can be reimbursed for using their vehicles for commuting by a tax-free reimbursement of HUF 9 / km. Previously this tax-free reimbursement was available only to those employees who were living outside the administrative boundary of their workplace.
Tax base change
The tax base of income originated by interest rate discount (Section 72. of Act CXVII of 1995 on Personal Income Tax, eg. loans provided by employers) is now 1.18 times the respective income.
The tax base of benefits in kind was not affected by the decrease in the personal income tax rate, however, and remains at 1.19 times the value of benefits provided.
Family tax allowance
The applicable monthly family tax allowance per dependant is now as follows:
Number of dependents Tax allowance Tax reduction
One dependent HUF 66,670 HUF 10,000
Two dependents HUF 83,330 HUF 12,500
Three or more dependents HUF 220,000 HUF 33,000
First marriage tax allowance
The first marriage tax allowance can be utilised by a couple if at least one of the spouses is married for the first time. The allowance is applied to the income of one of the spouses. Since 1 January 2016, the first marriage tax allowance per couple is HUF 33,335 resulting in a decrease of HUF 5,000 in the personal income tax liability.
2015 annual personal income tax payment and reporting
Insignificant tax payment liabilities will not be payable
As of 2016, individuals will not have to pay tax payment liabilities which do not exceed HUF 1,000 and the Tax Authority will not register and transfer any reclaim under HUF 1,000.
Favourable change to instalment payments condition
For individuals who have a personal income tax paying obligation, and who are not self-employed or subject to VAT, the possibility of payment in instalments is still available without any interest or penalty. 2016 saw the amount subject to instalment payments increase from HUF 150,000 to HUF 200,000. The instalment payment option will be available for both personal income tax and health care contribution provided that their sum does not exceed HUF 200,000. The instalments can be paid over a period of six months at most.
Completion of tax return submission obligation for year 2015
The tax authorities have taken the first step towards taking over the annual personal income reporting from individuals / employers. Starting from the 2015 annual personal income tax reporting, it is now possible for individuals to authorize the tax authorities to do their personal income tax reporting for them. Still, this option is available only to individuals who, in addition to other conditions, have only employment income and no tax allowances. It is also expected that the individual will apply specifically for it through an administrative procedure which, we expect, will impact negatively the popularity of this option with employees at this moment.