The new law changing materially the taxation of employment income was approved and took effect on 1 January 2021.
Below we summarise the main changes:
Income from employment (and other types of taxable personal income) is generally subject to a personal income tax of 15%. As of 1 January 2021, the concept of a “supergross wage” taxable base has been abolished, which means that an employee's taxable base from employment consists of the gross wages only. Previously, the income tax was levied from the “supergross wage”, which included the mandatory social security and health insurance contributions payable by employer on top of the gross salary (additional 33.8%).
In addition, a new 23% progressive income tax rate has been introduced and this should generally apply to any employee with an annual tax base exceeding the maximum assessment base for social security, i.e., CZK 1,701,168 in 2021. A "solidarity surcharge" tax of 7% levied on gross employment income over the maximum assessment base will no longer be applied.
Various tax allowances continue to apply — including a general tax allowance for all taxpayers, dependent spouse allowance, dependent child allowance, disability allowance and student allowance. The general tax allowance was increased from the current CZK 24,840 to CZK 27,840 for the year 2021 and to CZK 30,840 for the year 2022. The maximal annual limit of CZK 60,300 for dependent child allowance (tax bonus) has been cancelled starting from 2021. This was the annual maximum amount (cap) of tax bonus, which could be claimed regardless of the number of children the employee had. Based on the new law, the employees can claim tax deduction for each child without any tax bonus cap.
The possibility of a lump sum meal allowance as part of anadvantageous tax regime for employees was introduced with effect from 1 January 2021. This is a new concept as previously the tax advantageous meal contributions, i.e. contributions which are exempt from taxation and social security and health insurance contributions were provided in the form of meal vouchers. The new law made it possible to provide tax advantageous meal contributions also in the form monetary payments (capped at a certain amount), which will most probably lead to limitation of use of the existing meal vouchers. Starting from 1 January 2021 the employers may thus provide the employees with monetary lump sum amounts instead of meal vouchers referred to as “meal contributions” exempt from tax and social security/health insurance contributions.