How to claim your child tax credit yourself. Step by step.

The tax relief for children takes the form of a reduction in the tax due.

Under Part Two, Chapter Four of the Personal Income Tax Act (PITA), you may be eligible for the following tax reliefs:

• Reduced working capacity
• Voluntary social security and insurance
• Contributory service for the purposes of retirement
• Donations
• Young families
• Children
• Children with disabilities
• Cashless payments
• For improvements and/or repairs to residential property.

In this article, we will focus in more detail solely on tax relief for children.

An important condition for claiming tax relief for children.

You are only entitled to tax relief if you have no public liabilities subject to enforcement as at the date of filing your annual tax return. Public liabilities are subject to enforcement by the National Revenue Agency (NRA) only in cases where they have been established by a notice of assessment issued in accordance with the relevant legislation and have been referred to the NRA for enforced collection.

Before submitting the necessary documents to claim a tax relief under the annual tax regime, you must check your tax and social security account. If you have any outstanding public liabilities subject to enforcement, you must settle them in order to benefit from the tax relief.

In cases where you have liabilities for local taxes and charges which are based on declared circumstances and are collectable by the local authority, as well as other current public liabilities, these do not constitute grounds for non-compliance with the legal requirements for claiming the tax relief.

Who is eligible for tax relief for children?

As at 31 December of the tax year, you must be a resident individual or a non-resident individual established for tax purposes in a Member State of the European Union or in a country of the European Economic Area, and you must be:

• a parent who has not been deprived of their parental rights, and where the child has not been placed outside the family and no guardianship or custody has been established in respect of the child; or
• guardian or trustee; or
• a member of the family of relatives or close friends, where the child has been placed for a period of not less than 6 months with relatives or close friends within the meaning of the Child Protection Act; or
• a foster parent, where the child has been placed on a long-term basis with a foster family within the meaning of the Child Protection Act.

It is also possible for the following to benefit from this tax relief:

• a parent who has not been granted parental responsibility following a divorce, provided that they meet all the necessary conditions set out in this text;
• the heirs or beneficiaries of a person who died during the tax year, provided that the other parent, or the other adoptive parent, close relative or family member, will not claim the tax relief for that tax year; In this case, the relief is claimed by submitting an annual tax return for the deceased person’s income (Form 2001c), with the conditions applying as at the date of death, rather than as at 31 December of the tax year, as is the case in other circumstances.

What criteria must children meet in order to qualify for tax relief?

Every child for whom you are claiming the tax relief must, as at 31 December of the tax year:

• is a resident of a Member State of the European Union or of a country within the European Economic Area;
• has not reached the age of majority (the relief applies, inclusive, to the years in which the child was born and reached the age of majority);
• is not placed in a social care or integrated health and social care service providing residential care at the state’s full expense.

In the event of the child’s death, these terms and conditions shall apply as at the date of death.

How much is the tax relief for children?

The tax relief for children allows, for 2023, a reduction in the tax base (Article 22c of the Income Tax Act) by:

• 6,000 BGN – where there is one child who has not yet reached the age of majority;
• 12,000 BGN – where there are two children under the age of majority;
• 18,000 BGN – where there are three or more children under the age of majority.

As the tax relief is determined by reducing the tax base under the law, the amount payable for a child under the age of majority is up to 600 BGN where income has been received during the year, subject to 10 per cent tax; for two children, the amount payable is up to 1,200 levs; and for three or more children, the amount payable is up to 1,800 levs.

Individuals who were on maternity leave during the year or who received other non-taxable income cannot claim tax relief, as they have not received any taxable income and therefore do not have an annual tax base to which the relief can be applied. In such cases, the tax relief may be claimed by the other parent.

The tax relief is available up to the sum of the annual tax bases under Article 17 of the Income Tax Act, provided that the other parent, or the other foster parent, close relative or family member, will not claim the relief for the relevant tax year.

Where the amount of the tax relief exceeds the sum of the annual tax bases, the difference may be claimed by the other parent, or, as the case may be, by the other foster parent, close relative or family member, by submitting an annual tax return.

The tax relief applies, amongst other things, to the years in which the child was born and reached the age of majority.

If the parents breach the requirement that each tax relief must be claimed by only one of them, and both have claimed the full amount of child tax relief for 2023, each person shall be liable for the portion of the tax corresponding to the amount of the relief claimed.

How can you claim the tax relief for children?

If you meet all the conditions set out in the law, you can claim the child tax credit in two ways:

• through the employer under the individuals’ primary employment contract;
• by submitting the annual tax return under Article 50 of the Income Tax Act.

Claiming the tax relief for children through the employer under the individual’s primary employment contract in the context of advance income tax

In 2023, tax relief for children may be claimed in respect of advance income tax as follows:

1. For income from employment: The monthly tax base for the relevant month in 2023 is reduced by the following amounts:

• one child under the age of majority – 500 BGN per month;
• two children under the age of majority – amounting to 1,000 BGN per month;
• three or more children under the age of majority – amounting to 1,500 BGN per month;

To this end, the employee must make a one-off decision to claim the advance tax relief for children by submitting a written declaration to their employer, in which they state that:

• in order to claim any of the tax reliefs, the conditions set out in Article 22c of the Income Tax Act must be met;
• the other parent, or the other foster parent, a close friend or a relative, will not be entitled to the advance tax relief for the relevant tax year;
• The worker/employee will not be entitled to tax relief with another employer.

The tax relief is claimed in advance up to the amount of the individual’s monthly tax base for income from employment, determined in accordance with Article 42(1)–(3) of the Income Tax Act. In such cases, the tax payable in advance is determined after deducting the amounts specified above.

The annual tax is calculated in accordance with Article 49 of the Income Tax Act, including in cases where tax relief for children has been claimed in respect of advance income tax.

2. For income from other business activities and from rent or other provision of rights or property in return for payment: tax relief for children may be applied by reducing the amount of advance tax due for the first, second and third quarters – up to the amount of the advance tax due for the relevant quarter, but not exceeding:

• 500 BGN per month for a child under the age of majority;
• 1,000 BGN per month for two children under the age of majority – ;
• 1,500 BGN per month for three or more children under the age of majority;

Tax relief for children cannot be applied to this type of income where:

• the amount of advance tax is determined and withheld by the payer of the income;
• The individual receives income from employment and has already claimed the tax relief in advance from their employer.

The relief is available provided that the other parent, or the other foster parent, close relative or family member, does not claim the advance tax relief for the relevant tax year.

In these cases, the annual amount of tax relief for 2023 is claimed by submitting an annual tax return in accordance with Article 50 of the Income Tax Act.

Persons carrying on business as traders within the meaning of the Commercial Act, including sole traders, as well as natural persons – farmers – who have opted to be taxed as sole traders, are not entitled to the child tax reliefs in respect of the advance taxation of income from such activities.

The advance use of tax relief is provided for as an option and applies only at the discretion of the relevant employees/ staff, who are required to submit the declaration under Section 2(6) of the Transitional and Final Provisions of the 2022 State Budget Act. The relief may only be claimed by those who have submitted such a declaration, and it is possible that only some of the eligible employees will take advantage of this option. The employer, who is responsible for correctly determining the advance tax due under Article 42 of the Income Tax Act on income from employment, should establish the necessary internal procedures relating to the submission of the declaration by those of its workers/employees who wish to benefit from the reliefs in respect of the advance taxation of income from employment relationships.

Should the employer be unable to apply the relief in advance, they could inform their workers/employees that they will not be able to apply the relief when determining the monthly tax base for a particular month.

Claiming the tax relief for children in the context of annual taxation of income from employment with employers who, as at 31 December 2023, are employers under a primary employment contract

In order to claim tax relief for children from their employer under their main employment contract, the employee must submit the following between 30 November and 31 December 2023:

• Declaration for claiming the tax relief for children under Article 22c(8) of the Income Tax Act (Form 2005)'
• a written declaration stating that, at the time of its submission to the employer, there are no public liabilities subject to enforcement, or that they will submit an annual tax return for the tax year. For the employee’s convenience, instead of submitting a separate declaration, they must indicate in Part I, line 6, of the declaration for claiming tax relief for children, that they have no enforceable public liabilities or that they will be submitting an annual tax return for the tax year, because, if this is not the case, they are not entitled to the reliefs.

By 31 January 2024, the employer under the employee’s primary employment contract shall calculate the annual tax base for income from employment, reduced by the amount of tax relief, and determine the annual amount of tax.

Where the assessed annual tax liability is lower than the amount of tax withheld at source during the year, resulting in an overpayment of tax, the employer must, by 31 January 2024, reimburse the difference to the employee. In this case, the employer shall set off the refunded amount against subsequent payments to the state budget in respect of income tax arising from the employment of that individual or of other employees.

Where the employer has not refunded the overpaid tax, individuals may claim tax relief by submitting their annual tax return under Article 50 of the Income Tax Act for 2022, including where their income consists solely of earnings from employment.

Claiming the tax relief for children by submitting an annual tax return under Article 50 of the Income Tax Act

Where tax relief for children is claimed by submitting an annual tax return, the specific amount of the tax relief for children is determined in Part VI of Appendix No. 10 (2010 model) to the annual tax return under Article 50 of the Income Tax Act.

Where the employer under the primary employment contract has not refunded the tax in respect of the annual taxation of income from employment, the individual, even if they have only income from employment, may claim the relief by submitting their annual tax return (completing Appendices 1 and 10).

If the tax relief has not been claimed in full from the employer, the declaration for claiming tax relief for children under Article 22c(8) of the Income Tax Act (Form 2005) must be attached to the annual tax return.

When claiming tax relief by submitting the annual tax return, the taxpayer must not have any public liabilities subject to enforcement as at the date of filing the annual tax return, including as at the date(s) of filing any amended return(s).

It is also possible for the following to benefit from these tax reliefs:

• a parent who has not been granted parental responsibility following a divorce, provided that they meet all the necessary conditions set out in this text;
• the heirs or beneficiaries of a person who died during the tax year, provided that the other parent, or the other adoptive parent, close relative or family member, will not claim the tax relief for that tax year; in this case, the relief is claimed by submitting an annual tax return for the deceased person’s income (Form 2001c), with the conditions applying as at the date of death, rather than as at 31 December 2023, as is the case in other instances.

In principle, each tax relief is available only to one parent (foster parent, close relative or family member). Where the amount of the relief exceeds the sum of one parent’s annual tax bases, the difference may be claimed by the other parent (the other foster parent, close relative or family member), by submitting an annual tax return under Article 50 of the Income Tax Act for 2023. In such cases, the total amount of the tax relief claimed by both parents, or foster parents, close relatives or other relatives, may not exceed the permissible amount, depending on the number of children.

If the parents breach the requirement that each tax relief must be claimed by only one of them, and both have claimed the full amount of child tax relief for 2023, each person shall be liable for the portion of the tax corresponding to the amount of the relief claimed.

The specific amount of the relief depends on the number of children and is deducted from the sum of the annual tax bases (the basis on which tax is calculated) under Article 17 of the Income Tax Act, up to the amount of that sum.

For 2023, the annual tax base under Article 28 of the Income Tax Act for income from business activities as a sole trader shall be reduced by the difference between the allowable amount for 2023 of the tax relief for children and the amount of tax relief claimed from the sum of the annual tax bases under Article 17 of the Income Tax Act for the same year. This is because tax reliefs are applied first to income subject to tax on the total annual tax base (income from employment, other business activities, lettings, the sale of property, other sources) and then against the annual tax base under Article 28 of the Income Tax Act for income from business activities as a sole trader.

When claiming the tax relief as a foreign individual resident for tax purposes in a Member State of the European Union or in a country of the European Economic Area, copies of official documents proving that the conditions for claiming the tax relief for children are met, together with their translation into Bulgarian by a sworn translator.

So, following this detailed theoretical section, let’s simplify and summarise:

If

• you are the parent of a child or children who have not yet reached the age of majority
• you have no public liabilities subject to enforcement
• you have taxable income (from employment or other sources),

you can:

1. to ask your main employer to allow you to claim tax relief for children in advance. They may refuse.
2. to claim the tax relief for children when your income from employment with your main employer is assessed on an annual basis as at 31 December. Your employer may refuse this claim.
3. to claim the tax relief for children by submitting an annual tax return under Article 50 of the Income Tax Act.