Taxing Wages 2023

Hungary

Abstract

This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.

Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.

The national currency is the Forint (HUF). In 2022, HUF 377.21 were equal to USD 1. In 2022, the average worker earned HUF 6 328 111 (Source: Secretariat estimate).

1. Personal Income Tax Systems

1.1. Central/federal government income taxes

1.1.1. Tax unit

The tax unit is, in all cases, the separate individual. In exceptional cases, the employer can become subject to personal income tax, for instance in the case of benefits in kind.

1.1.2. Tax allowances and tax credits

1.2. Standard reliefs

• Basic reliefs: None.

• Standard marital status reliefs: None.

• Employee Tax credit: Since 1st January 2012 there is no employee tax credit.

• Family tax allowance: For families having children, the basis of income tax can be reduced by the family tax allowance, which amounts to HUF 66 670 per month (for families having one child), HUF 133 330 per month/each dependent (for families having two children) or HUF 220 000 per month/each dependent (for families having at least three children). This tax allowance can be applied by a pregnant woman (or her husband) as from the 91st day after conception until birth of the child. The tax allowance may be claimed by one spouse or be split between the spouses. As of 1st January 2014, the family tax allowance was extended: families whose combined PIT base is not sufficient to claim the maximum amount of the family tax allowance can deduct the remaining sum from the 7% health insurance contribution and the 10% pension contribution. This measure does not affect the eligibility for social security benefits (pensions, healthcare, transfers, etc.).

• From 1^st January 2020, mothers who raise or have raised at least four children are exempt from paying personal income tax on their income received from an employer or gained by self-employment.

• From 1^st July 2020 the regulation of social security contributions have been integrated in a general law. The change has a positive outcome for families with children: the remaining sum of the family tax allowance will be deductible from the entire 18.5% of the new social security contribution of the employees (formerly the 1.5% labour market contribution was not taken into account in the regulation of family tax allowance).

• From 1^st January 2022, young persons under the age of 25 are exempt from personal income tax payments up to the national average wage calculated in July of the previous year (the threshold is HUF 433 696/month in 2022).

1.1.2.2. Main non-standard tax reliefs

• Trade Union membership dues: Membership dues and contributions paid to trade unions and other corporate bodies of employees are deductible without any restriction.

• Tax credits are made available for physical disability or agricultural activities. Tax deduction is available for those having income from abroad.

• From 1st January 2015 for newly married couples (where it is the first marriage for at least one of the parties) the basis of income tax can be reduced by HUF 33 335 per month for one person of the couple for 24 months.

1.2.2. Tax schedule

The rate of personal income tax amounts to 15%.

1.3. State and local income taxes

In Hungary there is no local personal income tax system supplementing the central one.

2. Compulsory Social Security Contributions to Schemes Operated within the Government Sector

2.1. Employees’ contributions

2.1.1. Pensions

The rate of pension contribution amounts to 10% of gross earnings.

From 1^st January 2019 retired workers (old age pension) does not have to pay 10% pension contribution on their wage income.

From 1^st July 2020 employees’ social security contributions – currently consisting of separate pension, sickness and labour market contribution items – have been integrated into the single social security contribution. The new regulation includes the extension of the social contribution exemption of retired individuals to all the other gainful activities (previously employment contracts only).

2.1.2. Sickness

The rate of health security contribution amounts to 7% of gross earnings.

From 1^st January 2019 retired workers (old age pension) does not have to pay 4% sickness contribution on their wage income. (Previously they had to pay only 4% out of the 7%).

The new regulation from 1^st July 2020 (2.1.1.) applies for sickness contributions as well.

2.1.3. Unemployment

The worker must pay, as employees’ contribution, 1.5% of gross earnings.

From 1^st January 2019 retired workers (old age pension) are not charged 1.5% labour market contribution on their wage income.

The new regulation from 1^st July 2020 (2.1.1.) applies for labour market contribution as well.

2.1.4. Others

None. The average worker does not have any obligation to pay other contributions than the above mentioned. However, the contribution rates may be different for certain types of income or for certain groups of income recipients (e.g. employees with pensioner status). None of these exceptions are applicable to the workers taken into consideration in this report.

2.2. Employers’ contributions

2.2.1. Pensions

None.

2.2.2. Sickness

None.

2.2.3. Unemployment

None.

2.2.4. Others

From 2012, the employers’ social security contributions were merged into the new payroll tax, called social contribution tax. This change is of legal nature, the combined rate remains 27% while the revenue is divided among the pension, health care and labour-market funds. In 2017, the social contribution tax decreased to 22%, and in January 2018, the rate was lowered to 19.5%. In July 2019, the rate was lowered to 17.5% and has decreased by 2 percentage points to 15.5% from 1^st July 2020. From 1^st January 2022, the rate was lowered by further 2.5 percentage points and the training levy (1.5%) was abolished, thus making the total employer side contributions 13% (previously 17%).

From 1st January 2013, the Job Protection Act (JPA) introduced new targeted reliefs in the employers’ contributions (social contribution tax and training levy) to incentivise the employment of the most disadvantageous groups on the labour market. This measure reduces the standard rate of the employers' contributions up to a cap of HUF 100 000 per month. From 2017, the JPA introduced a permanent reduction of the employers' tax rate by 50% of the current tax rate for:

• employees under 25 years of age,

• employees over 55 years of age,

• employees working in elementary occupations,

• employees working in agricultural occupations.

It also introduced temporary reductions (0% tax rate in the first two years of employment, and 50% of the current tax rate in the third year) for:

• long term unemployed re-entering the labour market,

• people returning to work after child-care leave,

• career-starters.

From 1^st January 2015, the budgetary institutions are not eligible for the JPA tax allowances anymore.

From 1^st January 2019, the JPA is being phased out and new better targeting reliefs were introduced. The new reliefs reduce the standard rate of the employers' contributions up to the cap of the minimum wage.

The minimum wage was HUF 167 400 per month in 2021, raised to HUF 200 000 per month from 1^st January 2022.

The new reliefs reduce the employers' tax rate by 50% of the current tax rate for:

• employees working in elementary and in agricultural occupations

In addition, there is a temporary reduction (0% tax rate in the first two years of employment, and 50% of the current tax rate in the third year) for:

• employees returning to labour market (those who had been out of work for at least 6 months out of the preceding 9 months became entitled for a new type of tax allowance)

In addition, there is a temporary reduction (0% tax tare in the first three years of employment, and 50% of the current tax rate in the fourth and fifth year) for:

• mothers with 3 or more children

From 1^st January 2019, the wage income of retired workers (old age pension) is exempt from social contribution tax.

The new regulation from 1^st July 2020 applies for the social contribution tax of retired workers as well.

The targeted reliefs in the employers’ contributions are not considered in the Taxing Wages model.

Social security contributions will have to be paid on other benefits than gross earnings (e.g., grants in kind) and payments (e.g., certain kind of contracts).

3. Universal cash transfers

3.1. Transfers related to marital status

None.

3.2. Transfers for dependent children

Effective from 1 January 2008:

 

Type of family	HUF per month
For a couple with one child	12 200
For a single earner with one child	13 700
For a couple with two children, per child	13 300
For a single earner with two children, per child	14 800
For a couple with 3 or more children, per child	16 000
For a single earner with 3 or more children, per child	17 000
For a couple with permanently sick and disabled child	23 300
For a single earner with permanently sick and disabled child	25 900

4. Main Changes in the Tax/benefit System Since 2010

• The tax base correction was phased out in two steps.

• The employee tax credit was abolished.

• The employees’ health care contribution was increased.

• The employers’ social security contributions were merged into the social contribution tax (legal change only, rates and base remained unchanged).

• Health contributions on benefits in kind were increased.

• As a temporary measure, a wage compensation scheme was in effect in the form of an employers’ SSC credit.

• Targeted employment incentives to boost the employment levels of groups at the margin of the labour force.

• The child tax allowance was extended in 2014 by allowing the deduction of the allowance from employees’ SSC.

• The rate of the PIT decreased by 1 percentage point in 2016.

• The rate of family tax benefit for families with two children is gradually increased from 2016 so that it will be doubled by 2019.

• From 2017 the social contribution tax decreased to 22% and from 2018 subsequently to 19.5%.

• From 1^st of July, 2019 social contribution tax decreased to 17.5%.

• From 1^st January 2019 retired workers (old age pension workers) doesn’t have to pay 10% pension contribution, 4% sickness contribution, employers’ social security contributions (social contribution tax and training levy) after their wage income.

• From 1^st July 2020 employers’ social contribution tax decreased by further 2 percentage points to 15.5%.

• From 1^st July 2020 employees’ social security contributions have been integrated into a general regulation. The new regulation includes the extension of the social contribution exemption of retired individuals to all the other gainful activities (previously employment contracts only).

• From 1^st January 2022, the rate was lowered by further 2.5 percentage points and the training levy (1.5%) was abolished, thus making the total employer side contributions 13% (previously 17%).

4.1. Changes to labour taxation due to the COVID pandemic in 2020 and 2021

• Sectors that were severely hit by the pandemic (e.g. tourism, restaurants, entertainment venues, sports, cultural services, transportation, agriculture, aviation industry) were temporarily exempted from paying social security contributions, payroll taxes and kiva (small business tax). The employee contribution is lowered to the legal minimum of HUF 7 710 per month until 30 June.

• Employer’s social security contribution tax rate decreased by 2 percentage points from 17.5% to 15.5% from 1^st July 2020, regardless of the real wage growth precondition included in the wage and tax agreement between the Government of Hungary and private sector representatives. Although the measure results a permanent change in labour taxation, the timing is closely linked to the extraordinary situation caused by the economic crisis.

• Sectors that were severely hit by the second wave of the pandemic (tourism, catering, leisure and cultural services) were temporarily exempted from paying social security contributions, payroll taxes and kiva (small business tax) from November 2020 to May 2021. This measure was further extended to the retail sector and other services during the stricter lockdown regulations in March and April 2021.

5. Memorandum Items

5.1. Employer contributions to private social security arrangements

In Hungary the law dealing with the voluntary mutual insurance funds (like pension funds) was enacted on 6 December 1993. From 2019 employers’ contributions to these funds are taxed as wages, but employees can apply a 20% tax credit with a limit of HUF 150 000 per year on. The tax authority pays the tax credit directly to a voluntary fund.

From 2019 voluntary insurance contributions paid by the employer are taxable as wages and the employees can apply a 20% tax credit with a limit of HUF 150 000 per year. Insurance contracts signed before 2019 have one-year transitional provision, in case of these contracts contributions paid by the employer are tax exempt till 30% of the minimal wage, above that it’s taxable according to an effective personal income tax rate of 17.7% and an effective health contribution of 21.83%.

As from 2008, employer pension institutions can be established. Based on the rules for 2017, the monthly contribution paid to an employer pension institution by the employer of a private worker is not limited and it is taxable according to an effective personal income tax rate of 17.7% and an effective health contribution of 25.96%. From 2018, the effective health contribution is 23.01%. From 2019, voluntary contributions to these funds are taxed as wages.

2022 Parameter values

 

Average earnings/yr	Ave_earn	6 328 111	Secretariat’s estimate
Child allowance (per child)	child_al	1	800 040
		2	1 599 960
		3	2 640 000
		4	2 640 000
Income tax schedule	tax_sch	0.15
Social security contributions	SSC_emp	0.185
Payroll taxes *	SSC_empr	0.13
	payroll_rate	0
		# of children	1	2	3+
Transfers for children	CB_rates	0	12 200	13 300	16 000
(monthly)		1	13 700	14 800	17 000

2022 Tax equations

The equations for the Hungarian system in 2022 are mostly on an individual basis. But the child allowance can be split between the spouses and cash transfers are calculated only once. This is shown by the Range indicator in the table below.

The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables "married" and "children". A reference to a variable with the affix "_total" indicates the sum of the relevant variable values for the principal and spouse. And the affixes "_princ" and "_spouse" indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with "_spouse" values taken as 0.

 

	Line in country table and intermediate steps	Variable name	Range	Equation
1.	Earnings	earn
2.	Allowances:
	Children	child_al	P	IF(Children>0, Children*VLOOKUP(Children, child_al, 2), 0)
	Total	tax_al	B	child_al
3.	Credits in taxable income	taxbl_cr	B	0
4.	CG taxable income	tax_inc	P	MAX(0,earn -tax_al)
	CG taxable income	tax_inc	S	Positive(earn_spouse-Positive(tax_al-earn_spouse-SSC_deduction_princ/tax_sch))
5.	CG tax before credits	CG_tax_excl	B	tax_inc*tax_sch
7.	CG tax	CG_tax	B	CG_tax_excl-tax_cr
8.	State and local taxes	local_tax	B	0
	Child tax allowance (Employees' SSC)	SSC_child_cr	P	=MIN(earn_princ*SSC_emp,Positive(tax_al-earn_princ)*tax_sch)
	Child tax allowance (Employees' SSC)		S	=MIN(earn_spouse*SSC_emp,Positive(-earn_princ)*tax_sch)
9.	Employees' soc security	SSC	B	earn*SSC_emp-SSC_child_cr
11.	Cash transfers	cash_trans	J	Children*(VLOOKUP((1-Married), CB_rates, MIN(Children, 3)+1)*12)
13.	Employer's soc security	SSC_empr	B	earn*SSC_empr
	Employer's payroll taxes	Payroll	B	earn*payroll_rate

Key to range of equation B calculated separately for both principal earner and spouse P calculated for principal only (value taken as 0 for spouse calculation) J calculated once only.