Tax allowance for young people under 25

Last week, the personal income tax relief for young people under 25 was announced. Its main rules are as follows.

The benefit is available to individuals under the age of 25, and the last month in which it can be applied is the month in which they turn 25.

The benefit is granted to the young person after the benefit for mothers with four or more children, but before the personal benefit, the benefit of married couples who got married for the first time and the family benefit.

The order is important, because the family benefit can be claimed even if the personal income tax base is reduced to zero, in which case it is a family contribution benefit.

If both spouses are under 25 in the case of a married couple entitled to the first-married couples' benefit, the marriage tax benefit will start to apply from the month in which one of the spouses reaches the age of 25. In this way, both benefits can be claimed consecutively in time. This rule applies to marriages tied after 31 December 2021.

The tax exemption applies only to income that is included in the consolidated tax base, i.e. typically income from wages or self-employment (e.g. commission, self-employed person, self-employment income), but does not apply to income from the transfer of assets, for example.

The amount of the tax base reduction is not unlimited and may not exceed the product of the number of months of entitlement and the average gross earnings at the level of the national economy for the month of July of the year before the year in question, as published by KSH.

The change may come into force on 1 January 2022, so the exact amount of the savings is not known at the moment. For comparison, the amount in July 2020 was HUF 401,847. In other words, the basis for claiming the benefit is twelve times this amount for one year, i.e. HUF 4,822,164, in which case tax savings of up to HUF 723,000 could be made if the benefit could be claimed this year.

The payer automatically reduces the taxable amount when calculating the tax benefit for the purposes of claiming the benefit, unless the person under 25 requests that the benefit be waived in whole or partially.

The maximum amount of tax relief that can be claimed is important because if the taxable amount exceeds the multiplication of the average gross salary for the month of July of the previous year by the number of months of entitlement, a declaration must be made to the employer or payer that tax is payable (or, more precisely, that the relief is not to be claimed). If you do not do so, you will have to pay a 12 per cent penalty on the difference of more than HUF 10 000, on top of the 15 per cent income tax payable.

The discount can be claimed for the first time on income earned after 31 December 2021, but in the case of employment, it can also be applied to bonuses calculated for 2021, if they are paid after 10 January 2022.