In an effort to reduce the state budget deficit, the government has come up with a package of austerity measures that will affect a number of areas, including wages.
The consolidation package has passed its third reading in Parliament and has been sent to the Czech Senate. Now all that is left is for the Senate to approve it and for the President of the Republic to sign it. We will, of course, continue to monitor developments around the consolidation package closely.
Below we give you a basic overview of the most important things it contains. A number of measures come into force as early as 1 January 2024.
Sickness insurance for employees
The consolidation package introduces a sickness insurance levy for employees, at the rate of 0.6% of the assessment base. This means that employees will pay a total contribution of 7.1% instead of the current 6.5% they pay for social insurance.
Change in income tax relief for employees
SPOUSE ALLOWANCE
For 2024, the conditions for entitlement to the dependent spouse allowance have been amended. Only a spouse caring for a child under the age of three will be able to claim the allowance.
The condition of an annual income of up to CZK 68,000 remains in force. Income includes, for example, gross wages, gross business income, rental income, social security pensions (old-age, disability), sickness benefits, maternity allowance (not parental allowance) and unemployment benefit.
SCHOOL FEES
The discount for demonstrably paid expenses incurred by the taxpayer for the placement of a dependent child in a pre-school institution, the so-called school fees, is abolished.
For the year 2023 (in the annual settlement/tax return) the discount will still be available. The maximum amount of the discount is the minimum wage, i.e. CZK 17,300.
STUDENT DISCOUNT
The student discount will be abolished from 1 January 2024.
DEDUCTION FOR UNION MEMBERSHIP FEES
This deduction will be abolished for 2024.
DEDUCTION FOR UPGRADING QUALIFICATIONS
This deduction for the cost of examinations verifying the results of continuing education will also be eliminated beginning in 2024.
Allowance for private use of a car provided
If an employee is allowed to use a company car for private purposes, this is non-cash income of that employee from which an addition must be made. This shall be for each month during which the vehicle is provided to the employee for private use.
- Currently, the amount of the surcharge is 1% of the entry price of the vehicle (for vehicles that do not fall into the low and zero emission categories).
- For low-emission vehicles, the rate of add-on is 0.5%.
- The consolidation package introduces a rate of 0.25% of the entry price of the zero-emission vehicle.
If an employee uses more than one vehicle for private use during a calendar month, his/her non-cash income is a percentage of the highest entry price of the vehicle used.
If the amount calculated as above is less than CZK 1 000, then the amount of CZK 1 000 becomes the employee’s non-cash income.
Non-monetary benefits
With effect from 1 January 2024, a limit for the exemption of non-monetary “leisure” benefits at the level of half of the average wage is introduced. For 2024, it will be possible to exempt these benefits up to a total of CZK 21,983 per year.
The limit for the exemption of the “meal voucher lump sum” will also apply to meals provided in a non-monetary form.
Benefits provided from the cultural and social needs fund are abolished.
Adjustments to the progression for personal income tax
There is currently a progressive method of personal income taxation, with two rates.
This year, the first tax rate is 15% for the part of the tax base up to 4 times the average wage in that year. The second rate is 23% for the part of the tax base that exceeds 4 times the average wage in that year.
For 2024, the threshold for taxing the sum of taxable income of an individual at the higher 23% tax rate is reduced from 48 times the average wage to 36 times the average wage.
For higher income taxpayers, this means higher taxation.
Ceiling for taxation at 15% tax rate:
- In 2023: CZK 1,935,552 – the tax base above this amount is subject to 23% tax
- In 2023 the monthly ceiling is 161 296 CZK (4 times the average wage)
- In 2024 it is: 1 582 812 CZK – the tax base above this amount is subject to 23% tax
- In 2024 the monthly ceiling is 131 901 CZK (3 times the average wage)
Higher levies for self-employed persons
Between 2024 and 2026, the minimum assessment base for social insurance contributions for self-employed persons will increase from 25% to 40% of the average wage, i.e. by 5 percentage points per year. This will bring the minimum assessment base closer to the level of the minimum wage.
At the same time, self-employed persons will pay social security contributions on at least 55% of the tax base (currently they pay them on 50% of the tax base).
Tax relief for work performance agreements
There will be two new thresholds for participation in the insurance of an employee who works under a work performance agreement (WPA) (and thus for the payment of social security contributions – but not for health insurance, this is a split where it has been proposed to rework the regulation – given the expected validity from 1 July 2024, this split will hopefully be resolved).
The first cap will apply to single-employer FTEs at 25% of average wages.
The second limit (higher) will be set for the occurrence of participation in insurance when multiple FTEs with multiple employers are combined, at 40 per cent of the average wage.
If either limit is exceeded, insurance will be payable.
The agreements will be registered by the CSSA. The employer should pay the insurance premiums in terms of the employer’s contribution after the CSSA has notified the employer that the aggregate income from the FTA has exceeded the threshold. The employee should settle the insurance premium on his/her own behalf with the CSSA.
Tightening the conditions for unemployment benefit eligibility
There is an extension of the period that people will have to work and be insured for a pension before they can claim unemployment benefit again.
