The system of personal income tax base allowances has changed a lot in Hungary in the past few years. In our article below we will describe what types of tax base allowance an employee or a private individual – who receives regular income subject to aggregation – can claim, in what amount and in what order in 2021. These allowances can be claimed in payroll on a monthly basis with a tax advance statement sent to the employer/payer, but they can also be claimed in one amount at the end of the year in the personal income tax return.
Personal income tax base allowances available in 2021
This year, employees/private individuals can claim the following four types of allowance:
- tax base allowance for mothers raising four or more children
- personal income tax base allowance
- newlywed allowance
- family tax and contribution allowance
Tax base allowance for mothers raising four or more children
The scope of those entitled to the tax base allowance for mothers raising four or more children, and who can claim this allowance and when, are all defined by Section 29/D of the Act on Personal Income Tax.
According to the law, the allowance can be claimed by a woman who, as a biological or adopting parent, has at least four children raised by her and:
- is entitled to family allowance, or
- is not entitled to family allowance but she was entitled for at least 12 years. This includes cases when the entitlement to family allowance ceased due to the death of the child.
According to Hungarian law, the family allowance for mothers (meaning exemption form personal income tax payment) raising four or more children can be claimed on income qualifying as wages and other income from non-independent activities, and, in the context of incomes from independent activities, on the ones listed in the Personal Income Tax Act.
It is very important that this allowance is the first in the order of personal income tax base allowances, i.e. it precedes all other tax base allowances when claiming. This means that if a given person claims the allowance for mothers raising four or more children, she cannot enforce the personal income tax base allowance, the newlywed allowance or the family tax allowance. The family contribution allowance is an exception here, as it can be claimed from wage income in the event of entitlement.
Personal income tax base allowance in Hungary
2021 is the first year when the personal income tax base allowance can be claimed as a tax base deductible, not as a deductible tax advance, as was the case so far. Based on the given statement, the employer or payer decreases the tax advance base for each eligible month by an amount equalling one third of the minimum wage rounded to one hundred forints.
This allowance can be claimed by a person who
- suffers from an illness defined in Government Decree 335/2009 (XII.29) on illnesses qualifying as serious disabilities,
- receives disability allowance
- or disability support.
Newlywed tax base allowance
In Hungary, married couples are eligible for the newlywed allowance if it is the first marriage for at least one of them. The allowance can be claimed by registered partners as well. The tax base allowance that can be claimed jointly by eligible persons is HUF 33,335 (roughly EUR 93) per month of eligibility. The first month of eligibility is the month following the marriage ceremony. The allowance can be claimed for a period of up to 24 months.
Family tax and contribution allowance
Depending on the number of dependants, the family tax base allowance by eligible dependant and eligibility month is HUF 66,670 (roughly EUR 186) for one dependant, HUF 133,330 (roughly EUR 372) for two dependants, and HUF 220,000 (roughly EUR 614) for three or more dependants.
The following persons are eligible to claim family allowance:
- private individuals who are eligible for family allowance;
- parents providing periodically alternating care for their child based on a legally binding court decision, agreement or joint statement;
- spouses not eligible for family allowance, living in the same household with the eligible party;
- expectant women and their spouse living in the same household with her;
- children eligible for family allowance in their own right, and private individuals receiving a disability allowance;
- private individuals eligible for family allowance, disability allowance or any similar benefits based on the legal regulations of any foreign state. Naturally, all legal requirements have to be fulfilled even then.
If the claimant has claimed all of the personal income tax base allowances and the amount of the allowance has not yet been exhausted, they can claim the family contribution allowance against the social security contribution. The amount of family contribution allowance equals 15 percent of the family allowance not claimed against the tax base (tax advance base), but no more than the amount of the social security contribution.
Order of personal income tax base allowances
If somebody is entitled to several tax base allowances, they can only claim them in a specific order. In 2021, the order is as follows:
1. tax base allowance for mothers raising four or more children
2. personal income tax base allowance
3. newlywed allowance
4. family tax and contribution allowance
If, during the year, an employee/private individual claims any of the aforementioned allowances without any legal grounds to do so, and as a result there is a payment obligation exceeding HUF 10,000 (roughly EUR 28) in their tax return, 12% of the payment liability will have to be paid as a penalty together with the tax arrears.
Our article does not fully cover the Hungarian personal income tax base allowances that can be claimed in 2021, it only strives to present the most significant changes. Feel free to contact our payroll specialists if you have any specific questions regarding the allowances.