An employee’s revenue versus income – differences and tax implications

An employee’s revenue and income – why is it worth knowing the difference?

Salary is one of the most important aspects of working life. In practice, however, many people fail to recognise the significant differences between the concepts of revenue and income. At first glance, they seem synonymous, but in reality they refer to different values, and understanding them correctly is crucial not only for tax returns but also for planning a household budget and assessing one’s own financial situation. The following article explains these issues in detail from an employee’s perspective and addresses the practical aspects relating to pay, taxes and benefits.

An employee’s income – what does it actually mean?

Under tax legislation, an employee’s income comprises all cash and benefits in kind received during a given period that are linked to the employment relationship. Income includes not only basic salary but also bonuses, awards, overtime pay, compensation for unused holiday leave, as well as various types of cash and non-cash benefits (e.g. a sports card, insurance or a company car used for private purposes).

• Income also includes the value of free benefits, provided they meet the conditions laid down by law (e.g. they are voluntarily used by the employee and bring them an individual, measurable benefit).
• Income is recognised in the month in which the remuneration is made available to the employee, i.e. usually on the date the remuneration is transferred.
• In the case of civil law contracts (contracts for services, contracts for specific work), contributions and taxes are calculated according to different rules, depending, amongst other things, on the student’s status, whether they are performing several contracts, or whether they are receiving income from various sources.

In practice, the employment contract states the gross amount, but what the employee actually receives into their bank account is the net amount.

Income refers to revenue minus tax-deductible expenses and social security and health insurance contributions. In the context of an employee, this means the actual profit at their disposal after all compulsory public levies have been paid.

• Gross income – this is revenue after deducting tax-deductible expenses, but before income tax is deducted.
• Net income – the amount an employee actually has at their disposal after deduction of personal income tax (PIT) and social security contributions (ZUS). It is this net income that forms the basis for day-to-day expenditure planning and is also taken into account by banks when assessing creditworthiness.

The amount of income forms the basis for calculating income tax, and determining it correctly is essential when completing a PIT return.

What factors influence an employee’s revenue and income?

Components of gross pay

• Basic salary
• Allowances and bonuses
• Cash awards
• Compensation for unused holiday
• Benefits in kind and cash benefits (e.g. perks, a company car for private use)
• Non-monetary benefits meeting tax criteria

What reduces revenue to generate income?

• Tax-deductible expenses – in 2024, these amount to PLN 250 per month (PLN 3,000 per year) for a single employment contract, and PLN 300 (PLN 3,600 per year) for employees commuting from another town. In the case of multiple jobs, the limits are higher.
• Social security contributions (pension, disability and sickness insurance)
• Health insurance contribution (9% of the assessment base, calculated on the gross salary less social security contributions)
• Advance payments of income tax (PIT), taking into account the tax-free allowance and any reliefs and exemptions (e.g. PIT for young people under 26, the ‘4+’ relief, the ‘return’ relief, relief for working seniors)

Gross versus net income – calculations using an example

An employee over 26 years of age, gross salary of 4,000 PLN, increased allowable expenses (300 PLN), PIT-2 form submitted:

• Social security contributions: 548.40 zł
• Health insurance contribution base: 3,451.60 PLN
• Health insurance contribution: 310.64 zł
• Taxable income: 3,152 PLN
• Advance PIT payment: 78 zł
• Net pay: 3,062.96 PLN

How do tax-deductible expenses work?

Tax-deductible expenses have a significant impact on an employee’s final income and the amount of tax payable. They are set at a flat rate for most employees, but in certain situations (e.g. creative professionals, or those carrying out creative work in the fields of copyright or science) they may amount to as much as 50 per cent of income, subject to a limit of PLN 120,000 per year.

In the case of civil law contracts (contracts for services or specific-task contracts), tax-deductible expenses are usually 20%, unless there are grounds for applying a higher rate (e.g. copyright). However, so-called ‘small contracts’ (up to PLN 200) are subject to a flat-rate tax of 12 per cent, with no deduction of costs.

Increasing tax-deductible expenses reduces the tax base and, consequently, PIT, which results in a higher net income. It is therefore worth making informed use of the allowances and deductions to which you are entitled.

The annual PIT tax return requires a precise distinction between revenue and income. Revenue forms the basis for calculating how much an employee has earned in a given year, whilst income (after deducting expenses and contributions) constitutes the tax base. Only by determining these figures correctly can you file your return accurately and avoid penalties from the tax office.

Where there are several sources of revenue (e.g. an employment contract, a contract for services, self-employment), each requires a separate calculation of costs and taxes. Failure to distinguish between them correctly may lead to errors and the need for corrections.

Negative income – is this possible for an employee?

In practice, negative income (a so-called tax loss) is rare amongst employees, but it can occur when tax-deductible expenses exceed income, for example as a result of high business travel costs or creative work involving significant personal expenditure. In such a situation, an employee may be entitled to adjust their tax returns or claim deductions in subsequent years.

Revenue versus income in the context of civil law contracts

In the case of contracts for services and specific-task contracts, the rules for accounting for revenue and income are similar to those for an employment contract, but differ in terms of social security contributions and tax-deductible expenses. The contractor’s status, the performance of multiple contracts, age (youth tax relief), and any combination of employment with self-employment all affect the amount of tax and social security contributions due.

• Contracts up to PLN 200 are subject to a flat-rate tax without taking costs into account.
• For other contracts, 20 per cent or 50 per cent of allowable business expenses apply, depending on the nature of the work carried out.

Comparison of tax arrangements – self-employment versus employment

A full-time employee does not have to settle their own taxes and contributions – this obligation rests with the employer. An entrepreneur, on the other hand, is required to keep their own records of income, costs, social security contributions and tax settlements. In a business, income is also affected by depreciation, write-downs and various forms of taxation (progressive tax scale, flat-rate tax, lump-sum tax).

It is worth noting that under the flat-rate scheme for recorded revenue, tax is paid on revenue rather than on income, which prevents the deduction of tax-deductible costs and affects the tax efficiency of this form of taxation.

Key differences: revenue versus income – a comparison table

Concept	Definition	Practical significance
Revenue	All cash and benefits in kind received or due arising from work	Forms the basis for tax and social security contribution calculations
Income	Revenue less tax-deductible expenses and social security contributions	The amount on which personal income tax (PIT) is calculated; the employee’s actual profit
Gross income	Revenue minus tax-deductible expenses (before tax)	Basis for calculating tax and contributions
Net income	Gross income minus income tax and contributions	The ‘take-home’ amount that an employee receives into their bank account

Challenges and nuances in practical accounting

• Changing regulations regarding tax reliefs and the tax-free allowance require ongoing monitoring of legal developments.
• Employees engaged in creative work are entitled to higher allowable expenses, but must provide appropriate documentation to support this.
• Where there are several sources of income (e.g. full-time employment and self-employment), each must be accounted for correctly and separately.
• Certain benefits (e.g. a company car for private use) are accounted for at fixed rates, regardless of actual usage.

Failure to distinguish clearly between revenue and income may lead to incorrect accounting, overpayment of tax or – worse still – tax penalties. Remember that revenue is the sum of all monetary and non-monetary benefits received in respect of work, whilst income is revenue less tax-deductible expenses, contributions and taxes.

Net income, on the other hand, is the actual amount an employee receives into their bank account and which they are free to spend as they wish. Gross pay, as shown in the contract, forms the basis for calculating taxes and contributions, but does not correspond to the amount actually available for spending.

It is worth reviewing your tax returns regularly, making use of available tax reliefs and correctly documenting your income and expenses (particularly if you are engaged in creative work or have multiple sources of income).If you have any doubts regarding your tax returns, it is advisable to seek advice from an accountant to avoid inaccuracies and unnecessary problems with the tax authorities.

Understanding the difference between revenue and income is not merely a matter of terminology, but above all a practical skill that enables you to manage your own finances responsibly, plan your expenditure effectively and avoid errors in your tax returns. A thorough approach to these matters translates into financial security for both the employee and their family.

Frequently asked questions

What are the main differences between an employee’s revenue and income?

Revenue is the total amount received by an employee before the deduction of taxes and social security contributions, most commonly referred to as gross pay. Income is the amount remaining after deducting social security contributions, income tax advances and tax-deductible expenses – in other words, the net pay that the employee receives ‘in hand’.

What constitutes an employee’s gross pay?

Revenue includes all financial payments received from the employer: basic salary, bonuses, allowances, overtime pay, awards and other monetary and non-monetary work-related benefits, e.g. allowances or reimbursement of business expenses.

What costs can be deducted from income to calculate taxable income?

So-called ‘tax-deductible expenses’ are deducted from income; these are expenses incurred in connection with the performance of work. For employees, these are usually set by law as a flat-rate amount (e.g. 250 zł per month), but may also include actual costs, such as travel to work or the purchase of workwear, provided they are properly documented.

Why is the distinction between revenue and income important for tax returns?

Income tax is calculated on the basis of income, not revenue. This means that an employee only pays tax on the amount remaining after deducting tax-deductible expenses and social security contributions. Correctly distinguishing between these terms is crucial for completing your PIT return correctly and avoiding tax errors.

What do the terms ‘gross income’ and ‘net income’ mean in the context of remuneration?

Gross income is the amount remaining after deducting tax-deductible expenses from gross revenue, but before income tax and social security contributions are deducted. Net income, on the other hand, is the actual amount an employee receives into their bank account, i.e. after all compulsory deductions have been made.

Can an employee have a negative income?

In the case of full-time employees, a negative income is very rare, but it can happen if the allowable business expenses incurred exceed the income earned. Usually, however, this situation applies to self-employed people rather than full-time employees.

What does the amount of net income mean for an employee?

Net income is the actual amount at the employee’s disposal – they can use it for day-to-day expenses, savings or investments. It is this figure that is most important when planning a household budget, assessing creditworthiness or making financial decisions.