Hungary
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 2020, HUF 309.76 were equal to USD 1. In 2020, the average worker earned HUF 5 011 590 (Secretariat estimate).
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
1.1.2.1. Standard reliefs
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 1st January 2020, mothers who raise or have raised at least four children will be exempt from paying personal income tax on their income received from an employer or gained by self-employment.
From 1st July 2020 the regulation of social security contributions will be 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).
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.
2.1. Employees’ contributions
2.1.1. Pensions
The rate of pension contribution amounts to 10% of gross earnings.
From 1st January 2019 retired workers (old age pension) does not have to pay 10% pension contribution on their wage income.
From 1st July 2020 employees’ social security contributions – currently consisting of separate pension, sickness and labour market contribution items – will be 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 1st 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 1st 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 1st January 2019 retired workers (old age pension) are not charged 1.5% labour market contribution on their wage income.
The new regulation from 1st 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
2.2.4. 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 will decrease by 2 percentage points to 15.5% from 1st July 2020.
The employer contributions also include a payroll tax: the training levy amounts to 1.5% of gross earnings.
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:
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:
From 1st January 2015, the budgetary institutions are not eligible for the JPA tax allowances anymore.
From 1st 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 149 000 per month in 2019, raised to HUF 161 000 per month from 1st January 2020.
The new reliefs reduce the employers' tax rate by 50% of the current tax rate for:
In addition, there is a temporary reductions (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 reductions (0% tax tare in the first three years of employment, and 50% of the current tax rate in the fourth and fifth year) for:
From 1st January 2019, the wage income of retired workers (old age pension) is exempt from social contribution tax .
The new regulation from 1st July 2020 (2.1.1.) 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).
The employers’ social security contributions were merged into the social contribution tax (legal change only, rates and base remained unchanged).
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 1st of July, 2019 social contribution tax decreased to 17.5%.
From 1st 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 1st July 2020 employers’ social contribution tax will decrease by further 2 percentage points to 15.5%.
From 1st July 2020 employees’ social security contributions will be 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).
4.1. Changes to labour taxation due to the covid-19 pandemic
Sectors that were severely hit by the pandemic (e.g. tourism, restaurants, entertainment venues, sports, cultural services, transportation, agriculture, aviation industry) are 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 will decrease by 2 percentage points from 17.5% to 15.5% from 1st 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.
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 1 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.
The equations for the Hungarian system in 2020 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.