Tax social privilege: what is it and who can count on it?

As the minimum wage rises, the number of employees eligible for the tax social privilege (hereinafter referred to as the "NSL") is decreasing. This is due to the fact that the social benefit is tied to the subsistence minimum. In this article, we will consider what types of tax social privilege exist, how it is applied and who can use the NSL in 2021.

What is a tax social benefit and who can count on it?

The NSL is a benefit that allows an employee to save on personal income tax (PIT) and, when paying a salary, the employer will withhold less income tax than 18%. In other words, thanks to the NSL, an employee can receive more money.

If the personal income tax is applied, the amount of personal income tax is calculated as follows:

The NSL can be divided into two types: NSL for yourself (Article 169.1.1, sub-clauses "B-E", Article 169.1.3, Article 169.1.4 of the TCU) and NSL for children (Article 169.1.2, sub-clauses "A-B", Article 169.1.3 of the TCU). The amount of tax social benefits depending on the type is shown in the table below.

An employee who has no children or one child under the age of 18 is entitled to one higher tax social benefit. If the employee has two or more children under 18 or a child with a disability, the NSL is applied for each child, and the increased NSL is applied for the child with a disability.

Conditions for granting tax social benefits

The personal income tax is applied to wages for the reporting period. The Tax Code of Ukraine also equates sick pay to wages.

If an employee receives a scholarship, monetary or property support for pupils, students, postgraduates, or military personnel from the state budget along with their salary, then such an employee is not entitled to a tax social benefit.

If an enterprise has employees called up for military service and retains their jobs, their salaries cannot be subject to the NSL.

The NSL can be applied to the salary at only one place of employment. If an employee officially works for several companies, he or she can choose the salary to which the NSL will be applied. It does not matter whether the employee's main or part-time job is a part-time job.

To understand whether an employee is eligible for the NSL, you need to compare his or her salary with the income limit. If the salary is higher, the NSL cannot be applied.

Since the income threshold for the NSL is less than the minimum wage in 2021, the number of employees eligible for the NSL is small, but they are there. They will be able to use the NSL in 2021:

• part-time employees, for example, 0.5 full-time equivalent (6000 * 0.5 = 3000);
• employees who worked a partial month, for example, were hired in the middle of the month or resigned at the beginning of the month;
• employees who are entitled to the child tax credit.

How can employees with children use the right to a tax social benefit?

Both parents can exercise the right to apply the NSL for children. To do this, you need to write an application for the application of the NSL and submit documents confirming this right.
The application must be addressed to the employer. It can be made in any form. The text of the application may be as follows:

"I request to apply to the income accrued to me in the form of salary a tax social benefit in the amount specified in subparagraph (norm of the Tax Code) of paragraph 169.1 of Article 169 of the Tax Code of Ukraine of 02.12.2010. № 2755-V.
To apply for the tax social benefit, I submit the following documents: (name of the document and its details).
I am aware that in accordance with subparagraph 169.2.1 of paragraph 169.2 of Article 169 of the Tax Code, the tax social benefit is applied exclusively at one place of accrual (payment) of monthly income in the form of wages."

If the child tax credit is applied to an employee's salary, the benefit is granted until the end of the year in which the child reaches the age of 18. For example, if a child turns 18 in June, the child tax credit is applied until December inclusive.

The child tax credit may be deprived of early if:

• the employee will be deprived of parental rights;
• the employee abandons the child;
• the employee's child will become a cadet on full state support.