With the arrival of 2021, it is necessary to ensure that the form, the Declaration of the taxpayer liable to personal income tax from dependent activities is signed by employees who wish to claim tax allowances in terms of the new year.
The 2021 is a year of the tax revolution. There is a significant reduction in the tax burden due to the abolition of the super-gross salary and the introduction of a rate of 15% of the gross wage. The increased rate of 23% will in fact replace the existing solidarity surcharge. It will apply to income above 4 times the average gross wage, which corresponds to 141,764 CZK for next year.
Monthly tax allowances (major change for 2021)
- per taxpayer 2 320,- CZK
- disability pension recipients of level I. and II. 210,- CZK
- disability pension recipients of level III. 420,- CZK
- holders of ZTP/P card (severe health disability) 1 345,- CZK
- systematic preparation for future employment 335,- CZK
Monthly tax credit per one child 1 267,- CZK
Monthly tax credit per second child 1 617,- CZK
Monthly tax credit for a third and any other child 2 017,- CZK
Those employees who do not claim tax allowance or credit do not sign the Declaration of the taxpayer liable to income tax for 2020. Please note that in terms of more employments, the tax allowance or tax credit may be applied only with one employer. The deadline for employees to claim the tax allowances this year is 15 February 2021. The monthly allowances/credits may be claimed through the Declaration of the taxpayer.
Required documents for claiming tax allowances and credits
Disability
Decision on grating disability pension, documents of pension payments (a copy).
Study
Confirmation of systematic preparation for future employment (an original).
Child tax credit
Confirmation from the employer that second spouse does not claim the tax credit (or possibly a proof of the amount the second parent claims), copies of birth certificates.
Children of full age (majors) - Student Status Certificate (original).
The Employee can ask his employer for annual tax reconciliation making that claim by 15 February 2021 at the latest. The form of the Declaration of the taxpayer shall serve this purpose.
Please see the below mentioned advice and recommendations related to the annual tax reconciliation.
How to approach annual tax reconciliation for 2020
In term of the tax year end of 2020, we would like to provide you with information regarding the annual reconciliation of personal income tax from dependent activities.
First of all, let us clarify some terminology – it is necessary to distinguish between annual tax reconciliation and tax return, which in practice may sometimes cause difficulties.
Tax return – submitted by employees directly at the relevant Tax Office according to their permanent residence (by 31 March). Employees are obliged to submit the tax return provided they meet the following conditions stated in ZD (Income Tax Act) (see the information below).
Annual reconciliation – carried out by an employer. Its purpose is not to further burden those employees, who besides their income from employment have no other taxable income, with submitting tax returns. Annual tax reconciliation request represents employee’s entitlement not an obligation.
In addition, we also provide a summary related to the annual tax reconciliation. It is particularly designed for employees who need to consider whether or not to request the annual tax reconciliation, or whether they are entitled to request it. The information may also be used by the HR specialists (personnel) to assist their employees with the annual reconciliation request.
Brief summary of annual reconciliation request (application):
- Who?
Every employee who is not obliged to submit a tax return.
- When?
Annually by 15 February.
- Where?
With the last taxpayer (employer) in 2020.
- How?
By filling out the relevant boxes in the Declaration of the Taxpayer (to be filled in completely and duly).
It is necessary to present all required certificates (confirmations) and documents by 15 February 2021 at the latest (documents with later date shall not be taken into consideration):
- Provided the employee has had more consecutive employers, he/she shall present the original copy of taxable income statements from all previous employers in 2020.
- Provided the employee has not been employed for a part of the year, he/she shall provide a proof (confirmation) of the duration of the job seeker being registered with a Labour Office (Employment Agency) and statement that he/she has not had any taxable income.
Please find bellow an overview of requirements needed for the annual tax reconciliation and the information on how to claim various reliefs and deductions.
Basic rule: employee’s obligation to submit a tax return excludes the possibility to carry out annual tax reconciliation by an employer.
Annual reconciliation may be prepared for an employee who is not obliged to file a tax return:
- he/she had income from one taxpayer (employer) throughout the year
- he/she had income from multiple successive taxpayers (employers)
- he/she signed the pink form, the Declaration of the Taxpayer with all taxpayers (employers)
- he/she had no other income pursuant to Section 7 - 10 ZD (Income Tax Act) with the total higher than 6,000 CZK (income from business activity or other independent gainful activity, rental income, capital income (gains), other income under Section 10 ZD)
- he/she had no income from dependent activity (employment) from abroad
- he/she had not made an early cancellation of a private life insurance policy
- he/she had not made an early cancellation of supplementary pension insurance
- He/she had not exceeded the annual limit for solidarity tax settlement in the tax period 2020 (which amounted to 1,672,080 CZK in 2020).
Annual tax reconciliation cannot be filed for an employee who is obliged to submit a tax return:
- he/she had not signed the Tax Declaration in the course of year 2020, not even by 15 February 2021
- had his/her income from more taxpayers (employers) subject to advance tax payments simultaneously within one month
- he/she had other income pursuant to Section 7 to 10 DZ higher than 6,000 CZK (income from business activity or other independent gainful activity, rental income, capital income)
- he/she is a a tax resident in the Czech Republic and had income from dependent activity (employment) from abroad
- he/she is a tax non-resident in the Czech Republic and applies allowance (deduction) other than for a taxpayer and study.
- he/she made an early cancellation of a private life insurance policy
- he/she made an early cancellation of supplementary pension insurance
- if the paid pensions did not exceed 36 multiple of minimum wage effective as of 1 January in the tax period
- he/she received a supplementary payment of net wage related to the wage recognized in the previous years by the previous employer, however it had not been paid out by the end of January 2021
- he/she provided a donation in accordance with listed purposes in the EU countries, Iceland and Norway
- He/she exceeded the annual limit for solidarity tax settlement in the tax period 2020
Please note the alignment of deadlines for tax refund or arrears – only two years now.
Note.
Tax non-residents (foreigners) may only claim tax credit for a taxpayer and a student. In the event of claiming other tax credits they may submit a tax return. If the payer (employer) has any doubts regarding employee’s residency, he/she may ask the employee to present the Declaration on so called tax domicile.
How to claim tax credits/allowances, non-taxable amounts?
- Making donations
The value of a donation may be claimed through a proof (statement) obtained from a done stating the amount and purpose (e.g. non-remunerated blood donations).
Please fill in the details on page 1 below
- Interests from credit (loan) used for financing housing needs
Credit (loan) agreement on financing housing needs (a copy).
An extract of the certificate of title indicating ownership of real estate or a Lease agreement when it is a rental flat, or possibly other documents depending on the manner of financing the housing needs (copies).
An original copy of Statement issued by the respective building society indicating actually paid interest in 2020 less state contribution.
Please fill in the details at the bottom of page 1 and also on page 2.
- Contributions to supplementary pension insurance paid by an employee (not employer)
A copy of an Agreement concluded between the employee and a pension fund.
An original copy of pension fund statement indicating paid contributions to supplementary pension insurance by the payer for 2020.
Please fill in the details on page 1 below
- Premium paid to private life insurance by employee
A copy of Agreement on private life insurance (verified by employee’s signature).
An original copy of statement indicating paid premiums for 2020.
Please fill in the details on page 1 below
- Paid membership fee of trade union
A trade union statement indicating paid membership fee for 2020 (original copy).
Please fill in the details on page 1 below
- Settlement for exams verifying the results of further education pursuant to Act No. 179/2006 Coll.
A proof of the payment made for the exam.
Please fill in the details on page 1 below
- Dependent spouse
Conditions: own income of the other spouse did not exceed 68,000 CZK in 2020.
Own income includes: sickness allowances, maternity benefits, unemployment benefits, old-age pension, disability pension, partial disability pension, income from business activities, income arising from inheritance etc.
Own income excludes: parental allowance, foster care benefits, funeral allowance, maternity grant, scholarship etc.
Marriage certificate or identity card (a copy), provided the other spouse is stated therein.
Page 1, part Tax Allowances (credits)
- Tax credit for placing a child into preschool facility
The tax credit for placing a child into a preschool facility (conditions specified in Section 35bb) may be claimed by those parents who settle the fee for a child in the care of preschool facility, i.e. in terms of annual tax reconciliation or as the case may be in terms of the tax return. It is an annual tax credit for a dependent child which within one common household can be claimed only be one of the taxpayers, i.e. up to the amount of proved expenses paid for the placement of the child (excluding board/meals), however up to the maximum of 14,600 CZK.
Used abbreviations:
ZD – Income Tax Act No. 586/2006 Coll., as amended
Although we exercised due care and diligence when preparing this newsletter, in no event shall ASB Czech Republic s.r.o. be held liable for any damage or loss arising from acting upon herein stated information. This content is for general information purposes only, we recommend consultation with our professional advisors.
Should you need any detailed information or assistance with filing tax returns, please do not hesitate to contact us.
Klára Cowan
Head of Payroll
ASB Czech Republic
kcowan@asbgroup.eu