How to Calculate an Employee's Tax-Deductible Costs?

how-to-calculate-employee-tax-deductible-costs

Calculating an employee's tax-deductible costs is essential for correctly determining the actual income generated by a given individual. This is the basis for calculating the tax liability. In this article, we have gathered the most important information on how to calculate an employee's tax-deductible costs in 2026. Here is what you need to know.

What Are Employee Tax-Deductible Costs?

Employee tax-deductible costs are expenses incurred in order to generate a given income. These costs reduce the amount of tax liability, and their amount is, in most cases, precisely regulated by law, including the Personal Income Tax Act (Ustawa PIT). The amount is determined as a flat rate and can be deducted by every employee regardless of whether they actually incurred any costs and what their amount was. The reduction of income by tax-deductible costs before other tax deductions are applied concerns employment contracts such as:

employment contract (umowa o pracę),
outwork contract (umowa o pracę nakładczą),
civil service relationship (stosunek służby),
cooperative employment relationship (spółdzielczy stosunek pracy), etc.

Tax-Deductible Costs – How to Calculate?

The rules on how to calculate an employee's tax-deductible costs are governed by Polish law. Their amount depends, among other things, on whether the workplace is located in the employee's place of residence or elsewhere. In the case of multi-establishment enterprises, the actual place of work is taken into account, not the company's registered office, if it is located in a different town. At the same time, neither the working hours nor the number of days worked in a given month affect the amount of tax-deductible costs.

Tax-Deductible Costs for Local Employees

In the case of employees working in their place of residence, the monthly tax-deductible cost is PLN 250, and the annual amount does not exceed PLN 3,000 under one contract, or PLN 4,500 if working for more than one employer. Annual income can be reduced by this amount before any tax deductions available to the employee are applied.

Tax-Deductible Costs for Commuting Employees

An employee working in a place other than their place of residence, who does not receive a separation allowance, may deduct flat-rate tax-deductible costs of PLN 300 per month, but no more than PLN 3,600 per year. If the employee works under more than one employment contract, the annual limit increases to PLN 5,400. However, if a commuting employee receives a separation allowance, the flat-rate tax-deductible costs are the same as for local employees.

Copyright Costs for Employees

Employees who perform creative work, including authorial works, and transfer their rights to employers may be entitled to so-called copyright costs. Their amount is as much as 50% of the income related to the transfer of copyright to the employer. This means that in such a case, employee tax-deductible costs will be significantly higher, which substantially reduces the annual tax liability. The limit for these costs is PLN 120,000 per year. If actual costs are higher, the actually incurred costs can be adopted, but this requires thorough documentation in accordance with the applicable regulations.

Higher Tax-Deductible Costs for Commuting Employees

It turns out that tax-deductible costs for an employee do not always have to be calculated on a flat-rate basis. There are situations in which an employee may deduct higher amounts from their income than the statutory limits indicate. This applies to persons who incur expenses for commuting to their workplace or workplaces by rail, bus, ferry, or public transport, and these expenses exceed the flat-rate amounts.

In such a situation, it is possible to deduct the actually incurred costs, but the condition is precise documentation of each expense with named periodic tickets. This is regulated by Article 22(11) of the aforementioned Personal Income Tax Act.

Tax-Deductible Costs for Other Types of Contracts

It is worth noting that not only employment contracts or outwork contracts provide the opportunity to deduct employee tax-deductible costs in order to reduce the tax liability. Under the applicable Polish regulations, this option also covers:

mandate contracts (umowy zlecenia) and specific work contracts (umowy o dzieło) — 20% of income reduced by social security contributions withheld by the payer from the taxpayer's funds in a given month,
enterprise management contracts, managerial contracts, and contracts of a similar nature — the same rules as for employment contracts,
income from performing civic or social duties — the same rules as for employment contracts.

Currently, there is no possibility of deducting tax-deductible costs when settling on the basis of a lump-sum tax on recorded revenues (ryczałt od przychodów ewidencjonowanych). The Personal Income Tax Act does not provide for this option. It is reserved for employees settling on general terms (12% and 32%) or at a flat rate of 19%.

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Author:Gremi Personal Analytics Centre

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