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 2021, CZK 21.6 were equal to USD 1. In that year, the average worker earned CZK 435 312 (Secretariat estimate).
1.1. Central government income taxes
1.1.2. Tax allowances and tax credits
1.1.2.2. Main non-standard tax reliefs applicable to an AW
Charitable donations allowance: A tax allowance of up to 10% of taxable income is available for donations made to municipalities or legal entities for the financing of social, health, cultural, humanitarian, religious, ecological and sport activities. The minimum limit for donations is the lesser of 2% of taxable income or CZK 1 000. A similar procedure shall apply for gratuitous performance to finance the removal of the consequences of a natural disaster occurring in the territory of an EU Member State, Norway or Iceland. The total deduction may not exceed 15% of the tax base. As gratuitous performance for healthcare purposes, the value of one blood donation from an unpaid donor is valued at a sum of CZK 2 000 and the value of an organ donation from a living donor is valued at a sum of CZK 20 000.
Interest payments: Taxpayers may claim an allowance of up to CZK 150 000 for mortgage interest payments or other interest payments related to the purchase or the improvement of their house. The total sum of interest by which the tax base is reduced on all credits of payers in the same jointly managed household must not exceed CZK 150 000.
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 supplementary pension insurance with a State contribution under a contract on supplementary pension insurance with a State contribution entered into between the payer and a pension company; the sum that may be deducted in this manner equals the total amount of contributions paid by the payer for their supplementary pension insurance with a State contribution in the period of taxation, reduced by CZK 24 000.
Private life insurance premiums: Taxpayers may claim an allowance of up to CZK 24 000 for premiums paid according to a contract between the taxpayer and an insurance company if the benefit (lump sum or recurrent pension) is paid out 60 months after the signature of the contract and in the year in which the taxpayer reaches the age of 60.
1.1.2.3. Tax schedule
Since 2008, the Czech Republic has used a concept of the so-called 'super-gross salary' in determining the personal income tax (PIT) base from employment income. As of 1 January 2021, the Czech Republic is abandoning this concept of the super-gross salary. Instead, the tax base is now determined based on gross income only. For the period 2008-2020, the tax base, reduced by the non-taxable part of the tax base (see 1.1.2.2. - Main non-standard tax reliefs), rounded down to whole hundreds of CZK was subject to tax at the rate of 15%.
As of 2021, the Czech Republic returns to progressive taxation, with the introduction of marginal rate of 23 %, as follows:
Gross income up to the social security payment cap (the threshold for 2021 is CZK 1 701 168 – the 48 times the average wage for that year) will be subject to a 15% rate
Gross income exceeding CZK 1 701 168 will be subject to a rate of 23%
As the progressive tax rate will be applicable to all types of income, some passive income, like capital gains or rental income (combined with employment income), may incur a higher tax burden. However, for most individuals with employment income only, this change will lead to effective lower employment taxation.
After that, tax credits (see 1.1.2.4.) can be used to directly reduce a person´s tax liability.
1.1.2.4. Tax credits
Credit of CZK 24 840 per spouse (husband or wife) living with a taxpayer in a common household provided that the spouse’s own income does not exceed CZK 68 000 in the taxable period.
Credit of CZK 15 204 for first child, credit of CZK 22 320for 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 (in force since July 1, however, with retroactive effect from January 1):
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.
Credit of CZK 2 520 if the taxpayer is in receipt of a partial disability pension or is entitled to both an old-age pension and a partial disability pension
Credit of CZK 5 040 if the taxpayer is in receipt of a full disability pension, or another type of pension conditional on his full disability pension, or if the taxpayer is entitled to both old-age pension and full disability pension or deemed to be fully disabled under statutory provisions, but his application for a full disability pension was rejected for reasons other than that he was not fully disabled (handicapped).
Credit of CZK 16 140 if the taxpayer is a “ZTP-P” card holder.
Credit of CZK 4 020 if the taxpayer takes part in a systematic educational or training programme under statutory provisions in order to prepare for his future vocation (profession) by means of such studies or prescribed training until completion of his/her 26 or 28 years (Ph.D. programme).
The annual tax credit for placing a child into a preschool child care institution in the amount of the expenditure proven to be incurred for attending the preschool, up to the amount of the minimum wage for each placed child (for the year 2021: MW CZK 15 200)
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 1 701 168 for the year 2021. 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 3860/monthly/one of parents. 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):
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.
The term “social allowance” was abolished from 1 January 2012. However, this fact has no effect on the tax-benefit system for low-income families. The system of personalized payment was simplified and extended. For examples, in case of loss of income (social allowance) some people may put in a request for increase care allowance up to CZK 2 000. This allowance is addressed for recipients who are dependent children below 18 years of age and parent of dependent children below 18 years of age if the income of the family is under 2.0 family’s living minimum. Protection in the housing sector is also addressed in the context of state social support system (housing allowances-benefit) and the system of assistance in material need as additional housing. Also foster care benefits create a separate benefit system; since 1 January 2013 they have ceased to be a component of the state social support system. These allowances (housing, care and foster care) are not included in the Taxing Wages models.
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.
In 2018, there were two changes that have a significant effect on the current calculation of Taxing Wages.
List of main changes that have impact on the current computation of Taxing Wages:
Basic tax rate of 15% for gross income up to CZK 1.7 million annually remains
Marginal rate of 23% for income over CZK 1.7 million annually was introduced
Increasing the tax credit for the taxpayer from CZK 24 840 to CZK 27 840 (see chapter 1.1.2.4)
Increasing the tax credit for the second child from CZK 19 404 to CZK 22 320 (see chapter 1.1.2.4)
Increasing the tax credit for the third and each additional child from CZK 24 204 to CZK 27 840 (see chapter 1.1.2.4)
The tax credit can be applied in the amount of the expenditure prove to be incurred for attending the preschool, up to the amount of the minimum wage for each child increased to CZK 15 200 for the year 2021. The tax authority only verifies the name of a preschool childcare institution on the list approved by the MEYS. The age of the child does not effect on the entitlement to the tax credit for pre-school children. The children in preschool institutions are normally between 2 and 5 years old, but postponement of school attendance is possible. Introduction of this relief is a part of the Act on provision of childcare in a child society and also the Act on Maternal, Basic, High, Higher Professional, and other Education (see chapter 1.1.2.4.)
Increasing the child benefit from CZK 900 to CZK 1 270 (see chapter 3.2)
Increase in the proportion of social benefits paid in relation to the minimum living standards – from 2.7 to 3.4 (see chapter 3.2)
5.1. Identification of AW and valuation of earnings
The Ministry of Finance estimates the average earnings of the AW based on the data supplied by the Czech Statistical Office. The calculation of the average earnings is made by CZ-NACE division, which is compatible with ISIC classifications Ver. 4.
5.2. Employers' contributions to private pension, health and related schemes
There are supplementary private pension schemes only, but employers ‘contributions vary. Relevant information is not available.
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.