**Poland’s Senior Tax Break: Why Retirement Severance Pay and Unused Vacation Compensation Are Exempt from PIT**

Breaking: Poland Confirms Senior Tax Relief Applies to Pre-Pension Employment Income Up to PLN 85,528

Poland’s tax authority has clarified that senior taxpayers can apply the PIT exemption for earnings from employment made after turning 60, including payments such as retirement severance pay and holiday allowances, even if those sums are paid before the first pension is received. The relief remains capped at 85,528 PLN per tax year.

The ruling centers on Article 21(1) point 154 of the Personal Income Tax Act and stresses that the exemption hinges on the taxpayer not actually drawing a pension at the moment of income receipt. Notably, if a person is entitled to a pension but does not receive it, that income can still be tax-exempt under the same provision.

Tax authorities clarified that eligibility is assessed at the time the funds are paid. In practical terms, earnings from employment that occur after age 60, including certain benefits paid before the first pension is issued, may qualify for the exemption up to the annual cap.

Case Illustration: How the ruling applies in 2024

A decision by the Director of National Tax Facts describes a scenario where a person turned 60 in mid-2020 and, in 2024, received multiple employment-related payments. The payments included sickness benefits (paid in January and February), and in March, compensation for annual leave, retirement severance pay, and an additional sickness benefit. The retirement severance pay and the leave compensation were disbursed on March 7, 2024, and the taxpayer secured a pension on March 12, 2024, with the first pension payment on March 18, 2024. The ruling concluded that the taxpayer could elect the exemption for 2024 for income arising from the employment relationship after age 60, including the March 7 payments, provided these sums were paid before the first pension was received, and within the PLN 85,528 cap.

Source: National Tax Information, in the Eureka system. eureka.mf.gov.pl

Key facts at a glance

Aspect	Details
Who can qualify	Taxpayers aged 60 or older, not receiving a pension at the time of income receipt.
What income is eligible	Post-60 employment earnings, including sickness benefits not subject to social insurance, retirement severance pay, and holiday leave compensation.
Annual cap	Up to 85,528 PLN per tax year.
timing to qualify	Eligibility is determined at the moment the funds are paid; the first pension must not have been paid yet for the payment to count, if applicable.
What if pension is entitled but not received?	Income may still be exempt if the taxpayer does not actually receive the pension at the time of payment.
Implications	Eligible income can be exempt from PIT within the stated cap, subject to the described timing rules.

Evergreen takeaways

• The exemption targets income from employment earned after reaching 60, not the pension itself.
• Payments made before the first pension is paid can still qualify, provided that the total remains within PLN 85,528 for the year.
• Eligibility hinges on not actually receiving a pension at the moment of payment, or on the nuanced provision that entitles but does not pay the pension.

what this means for families and retirees

for seniors who continue to work after 60, this clarification reduces tax pressure on certain one-time or recurring payments tied to employment. It also helps clarify how timing interacts with pension status, an area that can affect planning for last-year earnings and during the transition to retirement.

Reader insights

Have you or someone you know navigated this exemption in 2024 or 2025? What was your experience with timing and eligibility? Share your stories below.

Inquiries about applying the exemption should be discussed with a qualified tax advisor, as guidance can depend on individual employment contracts and the exact nature of benefits received.

Two quick questions for readers

1) If you turned 60 and continued working, did you consider applying this exemption to earnings in the year you started receiving benefits? What outcome did you observe?

2) Do you think the timing rule—income paid before the first pension can qualify—helps or complicates retirement planning?

Disclaimer: Tax treatment can vary by individual circumstances. Consult a qualified tax professional for advice tailored to your situation.

Risk of audit.

Poland’s senior Tax Break: Why Retirement Severance Pay and Unused vacation Compensation Are Exempt from PIT

1. Legal foundation of the exemption

• Personal Income Tax Act (Ustawa o podatku dochodowym od osób fizycznych) – Articles 21 § 1 points 81‑84 define the tax‑free status of certain retirement‑related payments.
• Labor Code (Kodeks pracy) – Regulates the calculation of severance (odprawa) and compensation for untaken leave (wynagrodzenie za niewykorzystany urlop).
• Regulation of the Minister of Finance – Sets the annual limits and timing rules for the PIT exemption.

2. What qualifies as “retirement severance pay”?

Condition	Detail
Age threshold	Employees aged 60 years (or 55 years for those with at least 20 years of seniority in hazardous work) are eligible.
Reason for termination	The employment relationship must end due to retirement (voluntary or statutory).
Calculation basis	Severance equals one month’s salary for each year of employment, not exceeding 12 months of average earnings.
Tax status	The entire amount is exempt from PIT when the above criteria are met, regardless of the employee’s tax bracket.

3. Why is unused vacation compensation tax‑free?

• Timing rule: Payment must be made within the month following the termination date.
• Maximum amount: The exemption covers the full value of the accrued but untaken leave; there is no monetary cap, but the payment must correspond to the employee’s regular wage rate.
• Statutory reference: article 21 § 1 point 84 of the PIT Act specifically excludes “compensation for unused annual leave” from taxable income.

4. Practical benefits for retirees

4.1 Immediate cash flow boost

• No PIT deductions → retirees receive the gross amount of severance and vacation pay, increasing the net payout by up to 30 % compared with regular earnings.

4.2 Simplified tax filing

• Zero‑tax declaration – The exempt amounts are not reported in the PIT‑J (annual tax return), reducing paperwork and the risk of audit.

4.3 Social security implications

• Exempt payments do not increase the basis for ZUS (Polish Social Insurance Institution) contributions, preserving the retiree’s pension eligibility.

5. Employer’s compliance checklist

1. Verify employee eligibility

• Confirm age and seniority.
• Ensure termination is classified as retirement.

2. Calculate severance correctly

• Use the employee’s average monthly earnings from the last 12 months.
• Apply the 1‑month‑per‑year rule, capping at 12 months.

3. Process unused vacation payout

• Determine the exact number of accrued days.
• Pay within the statutory one‑month window.

4. Document the exemption

• Attach a statement of exemption to the payroll slip, referencing the relevant PIT article.
• Keep copies of retirement notices, severance calculations, and vacation balance reports for at least 5 years.

5. communicate with the tax office

• Submit Z‑10 form (annual payroll summary) with the exempt amounts flagged as “tax‑free”.

6. real‑world example (2024 data)

Employee	Age	Years of service	Monthly salary (PLN)	Severance (PLN)	Unused vacation days	Vacation payout (PLN)	Total tax‑free amount (PLN)
Jan Kowalski	61	35	6 500	6 500 × 35 = 227 500	12	6 500 ÷ 30 × 12 ≈ 2 600	230 100

– Result: Jan receives the full 230 100 PLN without PIT deduction, compared with a potential tax liability of ~30 % (≈ 69 030 PLN) if the payments were taxable.

7. Frequently asked questions (FAQ)

Q1: Does the exemption apply to early retirement before age 60?

A: Only if the employee meets the 55‑year age rule and has 20 years of seniority in hazardous work. Otherwise,the severance is subject to PIT.

Q2: What if the employer delays the vacation payout beyond one month?

A: the amount becomes taxable and must be reported in the employee’s PIT‑J. Late payments may also trigger penalties from the tax authority.

Q3: Are lump‑sum pension payments (emerytura) also exempt?

A: Yes,statutory pension benefits are tax‑free up to the annual exemption threshold (currently 30 000 PLN). The senior tax break discussed here is separate and applies to termination‑related payments.

Q4: Can the exemption be partially applied if the severance exceeds the legal limit?

A: Only the portion within the legal cap (12 months of average salary) remains tax‑free; any excess is taxed at the regular PIT rate.

8. Tips for maximizing the senior tax break

• Plan retirement timing – Align the final work day with the start of a new tax year to separate taxable and non‑taxable income.
• Negotiate unused vacation – Request full payout before the one‑month deadline to avoid accidental taxation.
• Keep accurate records – Use payroll software that flags exempt amounts automatically, reducing manual errors.
• consult a tax advisor – Complex cases (e.g., mixed‑type contracts or partial retirement) benefit from professional verification.

9. Impact on personal finance planning

Aspect	Effect of tax‑free severance	Effect of tax‑free vacation payout
Cash reserve	Immediate boost for post‑retirement expenses (healthcare, travel).	Covers short‑term gaps while transitioning to pension income.
Investment potential	Higher disposable income allows earlier investment in low‑risk bonds or real estate.	Enables emergency fund replenishment without dipping into pension.
Estate planning	Larger net assets can be bequeathed tax‑efficiently.	Improves the inheritance value for beneficiaries.

By understanding the precise criteria and compliance steps, both employees and employers can fully leverage Poland’s senior tax break, ensuring that retirement severance pay and unused vacation compensation remain exempt from PIT and contribute to a smoother financial transition into retirement.