Czech Republic
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 Czech koruna (CZK). In 2022, CZK 23.64 were equal to USD 1. In that year, the average worker earned CZK 472 783 (Secretariat estimate).
1.1. Central government income taxes
1.1.2. Tax allowances and tax credits
Main non-standard tax reliefs applicable to an AW
Charitable donations allowance: It is possible to deduct from the tax base the value of gratuitous performance provided to municipalities, regions, government branches, and legal entities defined in Income Tax Law that organise public collections for science and education, research and development purposes, culture, schools, healthcare, environmental, humanitarian or charitable purposes (more information in Income Tax Law). The provision of allowances is provided if the total value of gratuitous performance in the period of taxation exceeds 2 % of the tax base or amounts to at least CZK 1,000. A similar procedure shall apply for gratuitous performance to finance removing the consequences of a natural disaster occurring in the territory of the EU Member State or a State of the European Economic Area. In total, a maximum of 15% can be deducted from the tax base; this does not apply to the tax periods of the calendar years 2020, 2021 and 2022, for which a maximum of 30% of the tax base can be deducted in total. Furthermore, for the tax period of 2022 it is possible to deduct the value of gratuitous performance provided in order to support the State of Ukraine. As gratuitous performance for healthcare purposes, the value of one donation of blood or blood components from a donor who was not provided with financial compensation for the expenses connected with, shall be valued at a sum of CZK 3 000, the value of donation of an organ from a living donor shall be valued at a sum of CZK 20 000, and the value of one donation of hematopoietic cells, shall be valued at a sum of CZK 20 000.
Interest payments: The tax base shall be reduced by the sum equal to the interest paid in the period of taxation on building society credit, interest on mortgage credit loaned by a bank, reduced by the State contribution granted under special legal regulations that is used to finance housing needs (more information in Income Tax Law). The total sum of interest by which the tax base is reduced on all credits of taxpayers in the same jointly managed household must not exceed CZK 150,000 (For mortgage loans originated before January 1, 2021 the total sum of interest which can be reduced is CZK 300 000 per a household.) When interest is only paid for part of the year, the deducted sum must not exceed one twelfth of such maximum amount for each month of paying interest.
Supplementary pension scheme contributions: In a period of taxation, the tax base may be reduced by a contribution, in the maximum total amount of CZK 24 000, paid by a taxpayer to their: a) supplementary pension insurance with a State contribution, the sum that may be deducted in this manner equals the total amount of those parts of monthly contributions that, in individual calendar months of the period of taxation, exceeded the sum from which the maximum State contribution is granted (CZK 12 000); b) pension insurance, the amount that may be deducted in this manner equals the total amount of contributions paid by the taxpayer for their pension insurance in the period of taxation; c) supplementary pension savings, the sum that may be deducted in this manner equals the total amount of those parts of monthly contributions that, in individual calendar months of the period of taxation, exceeded the sum from which the maximum State contribution is granted.
Private life insurance premiums: The tax base for a period of taxation may be reduced by the premium paid by a taxpayer in the period of taxation for their private life insurance under an insurance contract that it was agreed that the insurance benefit (pension or lump-sum benefit) would not be paid earlier than after 60 calendar months from entering into the contract and, at the same time, not earlier than in the calendar year in the course of which the taxpayer reaches the age of 60 years. The maximum total sum that may be deducted for the period of taxation amounts to CZK 24 000 even if the taxpayer has several contracts entered into with several insurance companies.
Tax schedule
Since 2021, the tax base is determined on gross income. The tax is calculated from the tax base reduced by the non-taxable part of the tax base and by items deductible from the tax base (see 1.1.2.2. - Main non-standard tax reliefs), rounded down to whole hundreds of CZK.
As of 2021, the Czech Republic returns to progressive taxation, the tax rate amounts to
Tax credits
The calculated tax liability (see 1.1.2.3) shall be further reduced by tax credits.
Tax credit of CZK 24,840 for spouse living with a taxpayer in a jointly managed household, provided that such a spouse does not have their own income exceeding CZK 68 000 for the period of taxation.
Credit of CZK 15 204 for first child, credit of CZK 22 320 for second child, credit of CZK 27 840 for third and each additional child (irrespective of the child’s own income) living with a taxpayer in a common household on the territory of a Member State of the EU, Norway or Iceland, if the child satisfies one or more of the following criteria:
age below 26 year of age and physically or mentally disabled provided that the child is not in receipt of a state disability payment
If the child is a “ZTP-P” card holder (the child with a certain type of disabilities), the tax credit is doubled. The taxpayer can claim the tax credit in the form of tax reliefs or tax bonuses or their combination.
Basic disability tax credit of CZK 2 520, if the taxpayer is granted a disability pension for a first or second degree disability under a special law.
Extended disability tax credit of CZK 5 040 if the taxpayer is granted a disability pension for a third degree disability under a special law.
Tax credit of CZK 16 140 for the holder of a card identifying them as a person with a particularly severe disability requiring a guide (ZTP/P).
Student tax credit of CZK 4 020 for a taxpayer for the duration of their systematic preparation for a future occupation through study or prescribed training until reaching the age of 26 years or for the duration of full-time study in a doctoral study programme that provides university education until reaching the age of 28 years).
Tax credit for child placement, the amount of tax credit corresponds to the amount of expenses demonstrably incurred by the taxpayer for placing a maintained child for the given period of taxation in a pre-school facility. For each maintained child the tax credit may be used in an amount not exceeding the minimum wage (for the year 2022: MW CZK 16 200).
The non-standard tax are not included in the tax equations underlying the Taxing Wages results.
The maximum annual earnings used to calculate social security contributions are 48 times the national average monthly wage. The maximum ceiling for social security contributions is CZK 1 867 728 for the year 2022. The maximum ceiling for health insurance has not existed since 2013.
3.2. Transfers for dependent children
Non-taxable child allowances are the basic income-tested benefit provided to a dependent child with the objective to contribute to the coverage of costs incurred in his upbringing and sustenance. Entitlement to the child allowance is bound with certain income criteria. The central government pays this allowance in respect of each dependent child based on the family income level and provided that family’s income does not exceed 3.4 times the relevant family’s living minimum (LM) and simultaneously fulfils the minimum income condition of CZK 4 620/monthly/one of parents since 1 July 2022. Family income includes the earnings of both parents net of income tax and the employees’ social security and health insurance contributions. Child allowances are provided at three levels depending on the age of the child and are paid as follows:
The monthly family’s LM for the AW-type family with children can be calculated by summing the following amounts (in CZK) since 1 July 2022:
The LM is required by law. In case that family income (income of persons assessed together) is not achieved, the amount of family’s LM can be put in a request for state social support (housing benefit, family benefits, social assistance and other). The system applies the solidarity principle between the high-income families and low-income families, as well as between the childless families and those with children.
3.3. Additional transfers
Additional allowances (means-tested benefits in material need) are paid by the central government to low income families in adverse social and financial situation. The amount transferred is derived from the LM and varies according to total family income including family allowances and own efforts, opportunities and needs are taken into account. This allowance is not included in the computation.
List of main changes that have impact on the current computation of Taxing Wages:
Since 2021: a reduction of the tax base of employees by about 25 % (abolition of the so-called super gross wage concept, so that only the employee’s gross income is included in the tax base) and introduction of progressive taxation.
The equations for the Czech system are on an individual basis. But the spouse tax credit is relevant only to the calculation for the principal earner 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.