Annual Personal Income Tax Return: What to Know to Avoid Surprises

As the Annual Income Tax Return declaration period begins, we would like to draw your attention to several important points worth considering in order to better understand why the declaration of annual income may result in a personal income tax (PIT) underpayment and, consequently, an obligation to settle the outstanding amount with the State Tax Inspectorate.

I.     Application of the Tax-Exempt Amount of Income (TEA)

At the end of the year, the State Tax Inspectorate assesses an individual’s total annual income and applies the annual tax-exempt amount of income. It is important to note that for individuals who apply TEA during the year, the employer calculates and applies this amount differently – on a monthly basis, based solely on that month’s salary information. As a result, upon submitting the annual income tax return, an individual may be required to pay additional personal income tax if:

• Salary fluctuated significantly during the year (for example, due to substantial bonuses or other variable payments), and the employer applied a higher TEA than is actually applicable when total annual income is assessed;
• Additional income is received, such as income from property rental, individual activity, or other sources, which increases the overall level of annual income;
• The individual works for more than one employer, or changes jobs during the year, and TEA is applied by more than one employer in the same month.

For these reasons, applying TEA is generally recommended for individuals whose income is stable throughout the year, who work for a single employer, and/or who do not receive additional taxable income.

II.  Reaching the “Sodra Ceiling”

An additional PIT liability may also arise for individuals who reach the so‑called “Sodra ceiling” during the year –  i.e. the threshold of 60 average monthly wages (126,532.80 EUR in 2025). Once this threshold is reached, state social insurance contributions are no longer calculated; however, the portion of income exceeding the ceiling becomes subject to the progressive 32% PIT rate.

It is important to note that information about reaching the “Sodra ceiling” is available only after the employer submits the monthly declaration (SAM) of insured income for the previous month. After receiving this information, the employee may submit a request for the higher PIT rate to be applied; however, in practice, this rate is usually applied only from the following month. Below we provide an example illustrating how the tax rate is applied:

1. The employer submits information to Sodra regarding the employee’s insured income for October;
2. After the declaration (SAM) is submitted, information is received confirming that the “Sodra ceiling” was reached during October.
3. Upon learning this, the employee submits a request for the 32% PIT rate to be applied, and the employer applies it accordingly starting from November.
4. In theory, the higher PIT rate should have been applied to part of the October income, as this is when the threshold of 60 average monthly wages was reached;
5. Due to this timing mismatch, a lower PIT rate is applied to part of October’s income, which may result in an additional PIT payable when the Annual Income Tax return is filed.

III.     PIT paid by the employer

In practice, there are also situations where, after declaring annual income, a PIT overpayment arises that should be refunded by the State Tax Inspectorate, but the tax is not always returned to the individual.

In cases where part of the PIT during the year was paid from the employer’s funds, this amount is deducted from the refundable PIT. The overpayment is considered to have arisen from the employer’s payments rather than the employee‘s, therefore, this portion of PIT is not refunded to the individual. If you receive additional benefits from your employer, such as the use of a company car for personal purposes, we recommend checking who covers the taxes related to such benefits in kind.