NÉTAK: the tax benefit of mothers of four or more
In our blog post about tax returns, we mentioned NÉTAK, the tax benefit of mothers raising four or more children. (Please note that officially, NÉTAK is called a tax allowance, but in fact, it is a tax benefit, and we will refer to it as such in our blog post.) This article studies the tax benefit in more detail and explains when and how eligible mothers can apply for it.
Who qualifies for NÉTAK?
NÉTAK applies to mothers with at least four natural or adopted children who fulfill one of the following two conditions.
- They are currently eligible for family allowance
- They are no longer eligible for family allowance, but they were for at least 12 years
If a child dies early, they are still considered, in the same category as those who qualified for 12 years. The mother does not need to receive the family allowance (as her spouse might be the person receiving it), just being eligible for the family allowance makes the mother qualify for NÉTAK as well.
The tax benefit of mothers raising four or more children is applicable starting from the month when the fourth child was born or adopted. (Mothers who already met the requirements before the creation of NÉTAK qualify from 1 January 2020.) This child benefit turns into life-long exemption from personal income tax once four of the children reach 12 years of eligibility for family allowance. Until then, the mother’s eligibility is only temporary, meaning that she can forfeit the tax benefit if she no longer fulfills the conditions, for example, if she loses custody of her children.
How does NÉTAK work?
Mothers who meet the above requirements do not need to pay the 15% personal income tax after most of their income, such as their salary, entrepreneurial withdrawals, severance pay, sick pay and childcare allowance, nor after their income from agency agreement, license agreement and primary agricultural production. This child benefit does not apply to every form of income, which means that some mothers raising four or more children may still need to pay personal income tax. However, the tax benefit of mothers raising four or more children does not exclude eligibility for family tax benefit, meaning that the two can be combined to reduce personal income tax to zero even if the mother has sources of income that are not covered by NÉTAK, e.g. property leasing.
How to apply for NÉTAK
In Hungary, employees do not pay taxes on their own, but receive a net salary with their taxes and contributions already deducted. Accordingly, the easiest way of applying for NÉTAK is if upon becoming eligible the mother notifies the employer, the accountant of the employer or the payroll specialist of the employer (depending on the organizational structure). The employer can also initiate the procedure when they realize that an employee might be eligible. In this case, personal income tax will not be deducted, and the employee’s net salary will be higher. Moreover, her tax return draft made by NAV will contain all the required information, which means that she will not have to modify it. However, as we mentioned in a previous blog post, these pre-made drafts are not always faultless: therefore, it is recommended to review the details (involving the company’s accountant if needed) before submitting the tax returns.
The eligible mother can also apply for this tax benefit when filing her tax returns. In this case, personal income tax deducted until then will be repaid to her in one sum. As a result, the pre-filled tax return draft will have to be corrected before submission. In either case, a tax benefit declaration must be submitted.
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NÉTAK gives mothers of four or more children an exemption from paying personal income tax. They will earn more while the employer’s costs related to their salary do not increase, making NÉTAK beneficial for both employer and employee.
If you would like to know more about tax benefits, contact your English-speaking accountant at Helpers Finance. You can learn more about our accounting services here. You can ask for a consultation by calling our office on +36 1 215 0712, by e-mailing info@helpersfinance.hu or by filling in our contact form.
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