Annual settlement of advanced income tax on dependent activities

Jan. 4, 2022 Czech Republic

With the arrival of 2022, it is again necessary to arrange to sign the Declaration of the personal income tax payer from employees who want to apply tax rebates in the new year.

INCOME TAX PAYER DECLARATION FOR 2022
The basic tax rebate per taxpayer will increase from CZK 27,840 to CZK 30,840 for 2022.
For the second year in a row, the rebate will be increased by three thousand crowns.
Each employee can apply a proportional part of this annual discount on a monthly basis. However, he must sign a taxpayer declaration with his employer, commonly known as the "pink form".

Monthly tax rebates
(significant change)
Already for the tax period for 2021, thanks to the amendment approved in July, the annual amount per second child has been increased by CZK 2,916. It is now stands at CZK 22,320. For each additional child, the amount is increased by CZK 3,636, bringing it to CZK 27,840.

a) per taxpayer 2570,-
b) for receiving a I and II level invalidity pension 210,-
c) for receiving a III level invalidity pension 420,-
d) holder of a ZTP/P (disabled person with escort) card 1345,-
e) for continuous preparation for a future profession through study 335,-
Amount of monthly tax benefit for the first child 1267,-
Amount of the monthly tax benefit for the second child 1860,-
Amount of the monthly tax benefit for third and subsequent children 2320,-

The ceiling for tax bonus and higher necessary income is abolished
Another renewed change is the de facto abolition of the tax bonus ceiling. The annual limit for the amount of the tax bonus (CZK 60,300) was abolished by the so-called tax package from 2021. However, the legislators forgot that the legislative amendment also includes a monthly limit of CZK 5,025. Thus, the annual limit was not in force, while the monthly limit, which is used for employee payments, still was. The adjustment of any bonus which may not have been applied this year due to the monthly limit, will take place either within a tax settlement by the employer (for which you must apply by 15 February 2022), or when submitting the tax return.
The tax bonus can be used by taxpayers who have had an employment or business income of at least six times the minimum wage in any given year. For 2021 this is CZK 91,200, for 2022 it is CZK 97,200. Income from rental and from capital assets are no longer included in this limit. Monthly rebates for 2021 are requested through Income taxpayer's declaration.

Documents required for recognition of tax rebates and tax benefits

  • Disability

Disability pension decision, proof of pension payment (copy)

  • Education

Certificate of continuous preparation for a future professions (original)

  • Child allowance

Confirmation by the employer of the other spouse that it does not apply the tax allowance (or, confirmation of the amount applied and for which child applied by the other parent), copies of birth certificates for perusal
For adult children, confirmation of study (original)
It is possible to ask the employer for an annual tax settlement, also no later than 15.2.2022. A new separate form valid from 2019 is used for this purpose - Request for annual settlement of advances.
Hints and tips for annual settlement can be found below.

How to make an annual settlement for 2021
In connection with the end of the 2021 tax period, we are pleased to provide you with information on the annual settlement of income tax from dependent activities.
We would like to clarify the terminology by way of introduction - it is necessary to distinguish annual tax settlement from filing of a tax return, which sometimes causes difficulties.
Tax return - is filed by the employee himself directly to the competent Tax Office by place of permanent residence (before 31.3). An employee must file a tax return if he or she meets the conditions set out in the ITA (see info below).

Annual settlement – is performed by the employer. Its purpose is for employees who have no taxable income other than employment income not to be burdened with the obligation to file a tax return. Applying for an annual settlement is the right of an employee, but not an obligation.

Hereinafter we deal with the summary information for an annual settlement. They are intended primarily for employees to assess whether and how they will request an annual statement or not to, or whether they can apply for it at all. The information may also be used by HR professionals to help their employees request annual settlements.

Outline principles of the application for an annual settlement:

  • Who

Every employee who is not required to file a tax return

  • When

Every year before 15.2

  • Where

At the final payer (employer) in 2021

  • How

By filling in the relevant fields of the Taxpayer's Declaration (must be duly and completely filled in).

By 15.2.2022 at the latest it is necessary to provide the necessary confirmations and documents (unfortunately, documents with a later date of proof cannot be taken into account)

  • If the employee has had several consecutive employers, original documents of taxable income from all previous employers in 2021
  • If the employee was not employed for part of the year, he/she demonstrates this fact by confirmation from the labour exchange about the duration of stay on the job seekers register and by stating that he/she had no other taxable income.

Below is an overview of the conditions for making an annual settlement and information on how to apply various allowances and deductions.

The basic rule: any obligation on the employee to file a tax return precludes the possibility of an annual settlement by the employer.

Annual settlement can be performed for an employee who is not required to file a tax return:

  • Had income from only one payer (employer) over the whole year
  • Had income from several payers (employers) in succession
  • Signed the pink Taxpayer's Declaration form for all payers (employers)
  • Had no other income under Sections 7 to 10 of the ITA to a value higher than CZK 6,000 (income from business or other gainful activities, rental income, income from capital assets, other income under Section 10 of the ITA)
  • Had no income from dependent activities (employment) abroad
  • Did not terminate a private life insurance contract prematurely
  • Did not terminate a supplementary pension insurance contract prematurely

Annual settlement cannot be performed for an employee who has the obligation to file a tax return:

  • Did not sign a tax declaration during 2021, nor did so incrementally before 15.2.2022
  • Had income subject to advance tax from several payers (employers) simultaneously within a single month
  • Had other income under Sections 7 to 10 of the ITA to a value higher than CZK 6,000 (income from business or other gainful activities, rental income, income from capital assets)
  • Is tax resident and had income from dependent activities abroad
  • Is a tax non-resident in the Czech Republic and applies a different allowance than as a taxpayer and for studies
  • Prematurely terminated a private life insurance contract
  • Prematurely terminated a supplementary pension insurance contract
  • If pensions paid out have exceeded 36-fold the minimum wage valid at 1.1. for the tax period.
  • In 2021 received a supplement to net wages related to the wage posted by the previous employer against previous years, but not paid by the end of January 2021
  • Has provided a gift for listed purposes to the EU countries, Iceland and Norway

Note

Tax non-residents (foreigners) can only claim an allowance as a taxpayer and for study. If they apply additional allowances, they may file a tax return. If a payer (employer) has any doubts about an employee's residence, he may require him/her to provide Confirmation of so-called tax domicile.

How to apply tax rebates, tax benefits, non-taxable amounts?

  • Gifting

The value of gifts can be claimed by having the recipient of the gift confirm its amount and purpose (e.g. non-contributory blood donation).
Please fill in the data on Page 1 below

  • Interest on housing loans

Housing loan contract (copy).
Extract from the title deed confirming ownership of the property or the lease agreement, if it is a rental apartment, or other documents depending on the way the housing is being financed (copies).
Original of a confirmation from the relevant building society of the amount of interest actually paid in 2021, less the state contribution.
Please fill in the data at the bottom of Page 1 and at the top of Page 2

  • Supplementary pension insurance contributions paid by the employee (not by the employer)

Copy of the contract concluded between the employee and the pension fund.
Original of a confirmation from the pension fund of contributions paid into the supplementary pension insurance by the taxpayer for 2021.
Please fill in the data on Page 1 below

  • Private life insurance premiums paid by the employee

Copy of the private life insurance contract (certified employee's signature)
Original of a confirmation from the insurance company of the premium paid for 2021.
Please fill in the data on Page 1 below

  • Trade union membership dues

Confirmation of the trade union of the amount of paid membership dues for 2021 (original).
Please fill in the data on Page 1 below

  • Fees for exams verifying the results of further education pursuant to Act No 79/2006.

Confirmation of payment for an exam.
Please fill in the data on Page 1 below

  • Wife (husband) at home

Condition: the second spouse's own income did not exceed CZK 68,000 in 2021.
The following are included in own income: sickness benefits, maternity allowance, unemployment benefits, old-age pension, invalidity pension, partial invalidity pension, business income, inheritance income, etc.
The following are not included in own income: parental allowance, foster care benefits, funeral benefit, maternity (one-off) grant, scholarship, etc.
Marriage certificate or ID card (copy), if the other spouse is recorded on it.
Page 1, Tax Rebates section

  • Rebate for child placement

Parents who pay a child's fee for a pre-school facility will be able to claim a rebate for placing the child in a pre-school childcare facility (the conditions are specified in more detail in Section 35bb) within the annual settlement or as part of their tax return. This is an annual tax rebate, which can be claimed by one of the taxpayers per dependent child within one co-managed household, up to the amount of proven fees for the placement of the child (excluding meals), but up to a maximum of CZK 15,200.

Do not hesitate to contact us for more detailed information or help with preparing your tax return.

Klára Cowan
Klára Cowan Head of Payroll
ASB Czech Republic
kcowan@asbgroup.eu