The case concerned an employee covered by pre-retirement protection who had been unlawfully dismissed by their employer. After being reinstated, the employee received remuneration for the period spent out of work, from which an advance payment of personal income tax had been withheld.

The tax authorities considered the payment to be employment income rather than damages. The Regional Administrative Court in Warsaw took a different view, subsequently upheld by the Supreme Administrative Court, which emphasised the compensatory nature of the payment.

“Contrary to popular belief, the PIT Act does not establish a universal, all-or-nothing rule exempting all damages from tax. Whether an exemption applies must therefore be assessed on a case-by-case basis. Since the legislation does not define the term ‘damages’, disputes regularly arise over whether a particular payment can be classified as compensatory in nature. This issue also proved to be the main point of contention in the case under review,” our expert notes.

In his view, given the current wording of the legislation and the case law of the ordinary courts, there are sound grounds for exempting this type of remuneration from PIT.

We recommend reading the full article by Wiesława Moczydłowska:

https://www.prawo.pl/podatki/nsa-wynagrodzenia-za-czas-pozostawania-bez-pracy-bez-pit,1554445.html