Key components:
Personal Income Tax (PIT):
Hungary employs a flat-rate PIT of 15%. This means that regardless of income level, everyone pays the same percentage.
Social Security Contributions:
In addition to PIT, individuals are subject to social security contributions, which are currently 18.5% of the gross salary. These contributions fund social security benefits.
The 18.5% social security contribution in Hungary is comprised of several components that fund various social benefits. Specifically, it generally breaks down as follows:
A significant portion of the 18.5% goes towards pension funds, ensuring future retirement benefits.
This part funds the national healthcare system, providing access to medical services.
A portion contributes to unemployment benefits, offering financial support to those who lose their jobs.
This portion of the contribution covers costs associated with work related injuries.
In essence, the 18.5% social security contribution serves as a collective fund to provide a safety net for individuals in various life situations, including retirement, illness, unemployment, and workplace accidents.
Sick Leave: Employees in Hungary are entitled to 15 working days of paid sick leave per calendar year. During this period, the employer is obligated to pay the employee 70% of their absence pay.
Extended Sick Leave:
If the illness extends beyond the initial 15 days, further sick leave is possible, and compensation is then covered by the National Health Insurance Fund.
It is important to note that the amount of compensation paid by the national health insurance fund can differ from the initial 70% paid by the employer.
In summary, for the first 15 days of sick leave, an employee in Hungary typically receives 70% of their regular pay from their employer. If the sick leave exceeds this period, the national health insurance fund takes over, with potentially different compensation rates.
20+ days of for Vacation
In Hungary, the number of paid vacation days an employee is entitled to is determined by a combination of factors, primarily their age and the number of their children. Here’s a breakdown:
All employees are entitled to a minimum of 20 days of paid vacation per year.
The number of vacation days increases with the employee’s age.
For example, employees aged 45 and over are entitled to a maximum of 30 days.
Additional Days for Parents: Parents receive additional vacation days based on the number of their children. Additional days are granted to parents with children under 16 years old
Other tax payed by the employer: Social Contribution Tax:
It is important to differentiate between the social security contribution, that is paid by the employee, and the social contribution tax that is paid by the employer. The social contribution tax is 13%. So while not directly deducted from the employees net income, it is a cost associated with employing that person.
Key Considerations:
Tax Allowances: Hungary offers various tax allowances, including those for families with children, young couples, and individuals with disabilities. These allowances can significantly reduce the tax burden.
Hungary’s Family-First Tax Policies
Hungary has been making waves with its increasingly family-centric economic policies, and at the heart of this strategy lies a unique and evolving tax system.
The Cornerstone: Tax Exemptions for Mothers
One of the most significant shifts is the progressive tax exemption for mothers. This isn’t just a minor adjustment; it’s a bold move aimed at supporting families and encouraging population growth. Here’s the breakdown:
Mothers under 30 with one child: Enjoy complete personal income tax exemption. This provides a substantial financial boost during the crucial early years of parenthood.
Mothers with two or more children: Receive a lifetime exemption from personal income tax. Yes, you read that right – lifetime. This policy is a clear indicator of Hungary’s commitment to long-term family support.
Beyond Exemptions: The Family Tax Allowance
But the support doesn’t stop there. Hungary also offers a robust family tax allowance. This allowance reduces your taxable income based on the number of children you have, effectively lowering your overall tax burden. The more children, the greater the reduction. This is a practical measure that directly addresses the increased financial demands of raising a family.
A Holistic Approach: More Than Just Taxes
It’s important to recognize that Hungary’s family-friendly approach extends beyond tax policies. Alongside these tax benefits, the government provides:
Financial aid for families.
Subsidized housing options, especially for larger families.
Support with childcare, making it easier for parents to balance work and family life.
Pensions
The Foundation: State Pensions
Hungary’s state pension system is the cornerstone of retirement income. Reaching the statutory retirement age of 65 is your first step. There are some exceptions to the standard retirement age. For example, there is a special rule regarding women with 40 years of eligible service. This allows some women to retire earlier.
Your pension amount is determined by your past earnings and contribution history. To combat inflation, pensions are regularly adjusted to reflect changes in the consumer price index, safeguarding your purchasing power.
Supplemental Pension Payments
The supplemental pension payments that Hungarian retirees may receive. Hungary does provide supplemental pension payments, often paid annually (equal to the person’s one month pension income), or in some cases, in smaller installments throughout the year. These payments are not guaranteed, and the amount can vary based on government decisions and economic conditions. This is called 13th month salary for pensioners.
Inflation’s Impact: Staying Ahead
Inflation is a constant factor in any economy. In Hungary, pensions are indexed to the consumer price index, which helps mitigate the impact of rising costs. However, it’s wise to plan for potential fluctuations and consider supplementary income streams.
Extra Benefits for 65+
Beyond pensions, those aged 65 and over retain access to Hungary’s national healthcare system. Additionally, the government encourages the employment of pensioners through tax benefits for employers, meaning more money in your pocket if you choose to continue working.