The governing coalition has been intensively discussing, for several months now, the form of the so-called consolidation package, i.e. a set of austerity measures to support the recovery of public finances. All should come into force in January 2024, but the final form of the individual measures is still uncertain. In our latest newsletter, we bring you information on the currently proposed changes in the field of wages/income. If they come into force, they will affect both employers and employees from the new year.
Please take the information below as indicative only, we will continue to monitor the situation closely and will inform you in due course about the final form of the government package.
Increase in sickness insurance for employees
The government proposes to introduce sickness insurance for employees on the monthly assessment base at the rate of 0.6%. If the law is finally approved, the levy of employees and persons performing activities on the basis of a contract for the performance of an office (mostly executive remuneration) will increase to 7.1% (previously the levy was 6.5% – pension insurance).
For more information on the current rates and the amount of social insurance, please visit the website of the Czech Social Security Agency: https://www.cssz.cz/web/cz/vyse-a-sazba
Income tax increase for higher-income employees
We currently have two personal income tax rates – 15% and 23%. The higher rate of 23% is calculated on income above 4 times the average wage. From 1 January 2024, the threshold for the higher rate should fall to 3 times the average wage.
Below we show a model example:
The average wage for 2023 is CZK 40,324.
The threshold for the higher rate is therefore 40,324 * 4 = CZK 161,300 (rounding).
In the example, we assume a 4% increase in the average wage. Therefore, in 2024 the average wage will be CZK 42,000 after rounding.
The new threshold will thus be CZK 42,000 * 3 = CZK 126,000
It follows from the above that employees with a monthly income above CZK 161,300 gross have fallen into the higher taxation group until now. Starting from 2024, the threshold will drop to CZK 126,000 of gross monthly income (this amount is still indicative, the average wage for 2024 has not been determined yet).
Change in tax reliefs
The proposed changes should affect the following tax reliefs:
Relief for placing a child in pre-school (nursery fees):
- Full cancellation of the relief possible
Spouse relief:
- Modification of the conditions for entitlement to the relief: The relief will newly apply if the taxpayer (employee claiming the relief) lives in a joint household with a spouse with an annual gross income of less than CZK 68,000 and a dependent child under the age of 3.
- Until now, the application of the relief has only been conditional on the income of the other spouse. From 2024, the conditions should be significantly tightened.
Student relief:
- Full cancellation of the relief possible
Relief for continuing education verification exams:
- Full cancellation of the relief possible
Relief for contributions paid to a trade union organisation:
- Full cancellation of the relief possible
Changes to employee benefits
In May, the government announced its intention to abolish certain employee benefits, specifically those with tax exemption (so-called benefit cards, sports and culture allowances, Multisport cards and others). These benefits are currently used by roughly 3 million employees across the country, and the proposal has therefore earned strong criticism from trade unions.
No agreement has yet been reached, but after last week’s meeting the government came up with a proposed solution to preserve these employee benefits – it set an upper limit, so-called capping. The threshold should be at the level of one half of the average wage in the previous period, i.e. around CZK 20,000. In practice, this will mean that most employers will limit the amount of benefits in their internal regulations to just half of the average wage in order to reach the maximum possible.
The complete abolition of the tax exemption for these benefits is therefore unlikely. Further discussions on the form of the package, and thus also on the issue of employee benefits, will take place in September. We will keep you informed of any further changes.
Discount on the social insurance
We would like to inform you that from 1st February the employer can apply a discount on the social insurance per month for a specified range of employees and if the conditions set by law are met in the amount of 5% of the total assessment bases of the employees to which the discount is applied.
