Running a business in retirement is becoming more and more popular among seniors who want to stay professionally active. However, combining pension income with business revenue raises a number of questions about settling PIT (personal income tax) correctly. Particularly important are the calculation of income tax advances and the use of the tax-reducing amount, which cannot be used twice.
The tax system has specific rules for people who draw a pension and run their own business at the same time. ZUS (Social Insurance Institution), acting as the tax remitter when paying pensions, automatically applies the tax-free amount when calculating monthly advances. At the same time, the business owner is also entitled to use the same amount when settling business income. In the annual tax return, however, the tax-reducing amount is deducted only once, so applying it twice in advances ends with additional tax to pay – you can prevent this by filing a request with ZUS to stop applying the reduction.
Pension authorities, as tax remitters, are required to withhold monthly income tax advances from the pensions they pay. Such an advance is reduced by one twelfth of the tax-reducing amount, which in practice means the tax-free amount is applied every month
This issue needs to be discussed in detail, because incorrect settlements can lead to errors in the annual return and potential additional tax burdens. A pensioner who runs a business must understand exactly how the tax system works in order to avoid using tax reliefs twice while not overpaying tax.
Obligation to pay income tax advances on business income
Under the PIT Act, taxpayers earning income from a non-agricultural business are required to pay income tax advances during the tax year. This obligation arises automatically once you start the business and earn income from it, regardless of whether you also draw a pension or other benefits.
The amount of the advances is set according to strictly defined rules that reflect the progressive nature of the tax scale. The obligation to pay an advance arises only when business income exceeds the amount obtained by dividing the tax-reducing amount by the lowest tax rate in the first bracket of the tax scale. In practice, with the tax-reducing amount applicable in 2026 of PLN 3,600 and a tax rate of 12 percent, this threshold is PLN 30,000 a year.
The advance for the month in which the income threshold is exceeded for the first time is the tax calculated on the whole income earned in that month. Advances for the following months are the difference between the tax due on income earned since the beginning of the year and the total advances paid in the previous months
The advance payment system gives business owners some flexibility in how often they pay. Every business owner using the tax scale (12% and 32%) or the flat 19% tax (podatek liniowy) can choose between monthly advances, quarterly advances or simplified monthly advances, provided they meet the statutory criteria. The form of advance payments you choose should match the nature of your business and how regular your income is.
- Check your business income since the beginning of the tax year
- Calculate the tax threshold by dividing the tax-reducing amount by the lowest tax rate
- Compare the income earned with the calculated tax threshold
- If the threshold is exceeded, calculate the advance for the month
- Pay the advance by the 20th of the month following the month it relates to
- Keep a record of the advances paid for the annual settlement
For business owners using the flat-rate tax on recorded revenue (ryczałt), the situation is somewhat different, because in that case it is a flat-rate income tax rather than income tax advances. Here, too, you can choose between monthly and quarterly payments if you meet the relevant criteria.
Business owners on ryczałt pay flat-rate income tax, not income tax advances. The rates of this tax vary depending on the type of business and range from a few to more than ten percent
The tax-reducing amount for a pension and a business
The tax-reducing amount, commonly called the tax-free amount, is one of the basic tax policy tools intended to relieve taxpayers with the lowest incomes. In 2026 (as since 2022) this amount is PLN 3,600, which means taxpayers can earn income of PLN 30,000 without having to pay income tax. How the same amount works for salaried staff is explained in our article on the employee tax-free amount.
The tax-reducing amount works simply – PLN 3,600 is deducted from the calculated income tax, which in practice means that the first PLN 30,000 of income a year is free of tax. The amount is annual and applies to all income taxed under the tax scale, whatever its source.
| Tax base | Tax due | Notes |
|---|---|---|
| Up to PLN 30,000 | PLN 0 | Tax-free amount |
| PLN 30,001 – PLN 120,000 | 12% minus PLN 3,600 | First tax bracket |
| Over PLN 120,000 | PLN 10,800 + 32% of the excess | Second tax bracket |
It is crucial that the tax-reducing amount is available only once in a tax year and applies jointly to all income taxed under the tax scale. This means that a person who draws a pension and also runs a business taxed under the tax scale cannot use this relief twice.
The tax-free income of PLN 30,000 exists only under the tax scale. Other forms of taxation, such as the flat 19% tax or ryczałt, do not provide for a tax-free amount
The problem of double use of the tax-free amount arises when ZUS automatically takes it into account when calculating tax on the pension, while the business owner also wants to apply it when settling business income. In such a situation, it is worth deciding for which source of income the tax-free amount will be used in advances and, if necessary, filing the appropriate request with ZUS – otherwise additional tax will be due in the annual return.
It is worth stressing that the tax-reducing amount does not apply to the flat 19% tax or to ryczałt. Business owners who choose these forms of taxation give up the tax-free amount in exchange for simpler settlement rules and often more favourable tax rates at higher incomes. With any of these forms of taxation, our accounting services can cover your bookkeeping.
ZUS automatically applies the tax-free amount when paying the pension
ZUS, acting as the remitter of tax on the pensions it pays, automatically applies the mechanisms provided for in the tax rules. One of the most important elements of this system is the automatic application of the tax-reducing amount when calculating monthly income tax advances on the pension paid.
In practice, this means that ZUS divides the annual tax-free amount by twelve months and applies it to every monthly pension payment. With PLN 3,600 a year, this gives PLN 300 a month. If the tax calculated on the pension in a given month is, for example, PLN 500, then after applying the tax-free amount the pensioner pays only PLN 200 of tax. The cases in which the benefit is not taxed at all are set out in tax-free pensions – rules and indexation.
ZUS automatically applies a monthly tax-free amount of PLN 300 when calculating income tax advances on the pensions it pays. This amount is one twelfth of the annual tax-reducing amount of PLN 3,600
This system works well for people whose only income taxed under the tax scale is their pension. Problems arise, however, when a pensioner also runs a business taxed under the tax scale. In that case both ZUS, when paying the pension, and the business owner, when calculating business advances, may apply the same tax-free amount, which leads to it being used twice.
- ZUS automatically takes the tax-free amount into account when paying the pension
- The business owner can apply the tax-free amount when settling the business
- In the annual return the tax-free amount is deducted only once, so applying it twice in advances means additional tax to pay
- To avoid additional tax, you can file a request with ZUS not to apply the tax-free amount
- The request can be filed at any time during the tax year
To avoid this problem, a pensioner running a business can file a request with ZUS not to apply the tax-reducing amount when calculating advances on the pension. In that case ZUS will withhold tax on the pension from the first zloty under the tax scale rates, and the business owner will be able to use the full tax-free amount when settling business income.
A request not to apply the tax-free amount can be filed with ZUS at any time during the tax year. If the request is filed during the year, you need to establish how much of the tax-free amount ZUS has already used when paying the pension
The decision on which source of income to use the tax-free amount for should be well thought out and take into account the pensioner's whole tax situation. In some cases it may be more beneficial to leave ZUS to apply the tax-free amount automatically, especially when business income is irregular or small.
How to calculate advances when you also draw a pension
When a person who draws a pension runs a business, calculating income tax advances needs particular attention. The key is to coordinate the tax settlements for both sources of income properly, to avoid errors that could lead to additional tax burdens or problems with the tax authorities.
The basic rule is that the tax-reducing amount can be applied only once in a tax year, regardless of how many sources of income are taxed under the tax scale. This means that a pensioner running a business should decide whether the tax-free amount will be used in advances by ZUS when paying the pension or by the pensioner when settling the business.
Stefan, a pensioner from Żary, runs a consulting business and earns a monthly income of around PLN 8,000. His pension is PLN 3,500 a month. He decided to file a request with ZUS not to apply the tax-free amount to his pension, so that he could use it in full when settling his business, where he earns more.
If a pensioner decides to file a request with ZUS not to apply the tax-reducing amount when paying the pension, ZUS will withhold tax on the whole pension under the tax scale rates. The business owner, on the other hand, will be able to apply the tax-free amount in full when calculating business advances.
If the request is filed during the tax year, the situation becomes more complicated. You then need to establish how much of the annual tax-free amount ZUS has already used when paying the pension in previous months. The remaining unused part can be applied when settling the business.
When filing the request with ZUS during the tax year, you should calculate precisely how much of the tax-free amount has already been used. The remaining amount can be applied when settling the business in the following months of that year
Business advances are calculated under the standard rules, but you need to remember to coordinate them with the pension settlements. If the business owner has decided to use the tax-free amount for the business, the advance for the first month in which income exceeded the PLN 30,000 annual threshold will be reduced by the appropriate part of the tax-reducing amount.
- Determine total business income since the beginning of the year
- Check whether income has exceeded the PLN 30,000 annual threshold
- Calculate the tax due under the tax scale
- Apply the tax-reducing amount (if ZUS is not applying it)
- Deduct the advances paid in previous months
- Pay the calculated advance by the statutory deadline
Take particular care with your tax records. A pensioner running a business should carefully document all income, the tax-free amounts applied and the advances paid in order to prepare the annual settlement correctly. Errors in these records can lead to problems during a tax inspection or the annual settlement.
Choosing the right tax approach for a pensioner running a business
The decision on how to use the tax-reducing amount should be based on an analysis of the full-year tax situation of the pensioner running the business. There is no universal solution – the best approach depends on the amount of the pension, expected business income and how it is spread over time. The total tax for the year is the same – the choice affects the amount of advances during the year and the additional payment or refund in the annual return.
Leaving ZUS to apply the tax-free amount automatically may be beneficial when the pension is the main source of income and business income is irregular or relatively small. In that case the pensioner can be sure that the tax-free amount will be used in full, and in addition does not have to worry about calculating advances correctly with this amount taken into account.
On the other hand, moving the tax-free amount to the business settlement may be more beneficial when business income is significant and regular. This allows better cash flow management, because business advances will be lower in the early months of the year, when the tax-free amount has not yet been fully used.
When choosing a tax approach, take into account not only the amount of income from each source but also how regular and predictable it is. Business income is often more variable than pension payments
Another important factor is when in the tax year the business was started. If the business was started in the middle of the year and ZUS had already applied the tax-free amount to the pension in the first months, a large part of the amount may already have been used. In that case moving the remaining part to the business settlement may not bring significant benefits.
| Situation | Recommended approach | Reason |
|---|---|---|
| High pension, low business income | Tax-free amount on the pension | Lower advances on the main source of income during the year |
| Low pension, high business income | Tax-free amount on the business | Better management of advances |
| Similar income from both sources | Individual analysis | Depends on how regular the income is |
| Seasonal business | Tax-free amount on the pension | Regular pension payments |
Whatever the decision, a pensioner running a business should regularly monitor their tax situation and consult a tax adviser if necessary. Tax rules can change, and the pensioner's personal situation may change too, which may affect whether the chosen approach is still the best one.
The decision on how to use the tax-free amount can be changed in subsequent tax years. There is no obligation to use the same approach for many years if the pensioner's economic circumstances have changed
When planning your tax approach, it is also worth considering other tax reliefs and deductions available to business owners. Some of them may be particularly attractive to pensioners running a business, for example deductions related to investment in modern technologies. The start-up relief (ulga na start) for new business owners is not a tax relief – it means that for 6 months from starting the business the business owner is not subject to compulsory social insurance.
Practical aspects of settling tax with two sources of income
Running a business as a pensioner involves a number of practical challenges in settling income tax correctly. The most important is the need to keep precise records of all income and the tax reliefs applied, so that the annual settlement can be prepared correctly.
The first step should be to set up a suitable record-keeping system that lets you track income from both sources and the advances calculated and paid on an ongoing basis. It is particularly important to document when and how the tax-reducing amount was used, because this information will be key when preparing the annual tax return.
If a pensioner has filed a request with ZUS not to apply the tax-free amount to the pension, they should keep a copy of the request and the confirmation that ZUS received it. These documents may prove necessary if the tax office (urząd skarbowy) has questions or during a tax inspection.
- Keep detailed records of pension and business income
- Document all income tax advances paid
- Keep copies of requests filed with ZUS concerning the tax-free amount
- Regularly check that the advances are calculated correctly
- Prepare documents on an ongoing basis rather than leaving them until the end of the year
Pay particular attention to the deadlines for paying business advances. Regardless of whether the pensioner receives regular pension payments, the obligation to pay business advances on time stays the same. Delays can result in late payment interest and further sanctions.
Monthly income tax advances on business income must be paid by the 20th of the month following the month they relate to (quarterly advances – by the 20th of the month after the quarter). This deadline does not depend on the payment dates of the pension or other benefits
When preparing the annual tax return, a pensioner running a business must report all income taxed under the tax scale. This means the return will include both pension income (reported on the basis of the annual tax calculation PIT-40A or the information PIT-11A received from ZUS) and business income.
The key element of the return will be calculating the tax on total income correctly. The tax-reducing amount is deducted in the return once, from the tax calculated under the scale on the sum of pension and business income – regardless of whether ZUS applied it during the year or the pensioner applied it in business advances. The advances withheld by ZUS and paid on business income are deducted from the tax calculated in this way.
Mrs Maria ran an accounting business throughout the year, earning income of PLN 45,000. Her pension totalled PLN 42,000 a year. She filed a request with ZUS not to apply the tax-free amount to her pension in March, when part of the amount had already been used. In her annual return she deducted the tax-reducing amount once, from the tax on total income of PLN 87,000, and credited the advances withheld by ZUS and paid on business income against that tax.
If the pensioner filed the request with ZUS during the year, calculating the advances becomes more complicated. It is worth establishing how much of the tax-free amount ZUS used in each month and how much was applied in business advances. Errors in these calculations will show up in the annual return as additional tax to pay.
When filing the request with ZUS during the tax year, you should keep detailed records of how both sources of income used the tax-free amount. This information will be needed when preparing the annual return and may be requested during a tax inspection
