The consolidation package has passed the third reading of the Parliament and has been sent to the Senate of the Czech Republic. Now all that is left is the Senate's approval and the signature of the President of the Republic.
How will the changes brought by the consolidation package affect employers and employees?
Sickness insurance
Consolidation package introduces a sickness insurance levy for employees namely at the rate of 0.6 % of the assessment base. Up to now, the employer has paid sickness insurance for the employee at the rate of 2.1 % of the employee's assessment base.
Change in the calculation of personal income tax
Currently, the progressive method of personal income taxation is at two rates.
This year is first rate taxes in the amount of 15 % for the part of the tax base up to 4 times the average wage in that year (CZK 161,296 per month). Second rate is 23 % for the part of the tax base that exceeds 4 times the average wage in that year (over CZK 161,296 per month).
From 2024, the personal income tax rates should remain the same, i.e. 15 % and 23 %, but boundaries, from which a higher rate will be leviedthat is, 23%, is reduced to 3 times the average wage in the calendar year.
Cancellation of certain tax credits
Another change to the consolidation package is the abolition of certain tax credits. Which discounts on the tax has a consolidation package cancel it?
From the new year, it will no longer be possible to apply a student discount and a discount for the placement of a child, the "nursery fee", which is applied in the annual tax return.
Currently, a person who is a person preparing for a future profession pursuant to Sections 12 to 15 of Act No.117/1995 Coll., on State Social Support, is entitled to claim a student discount of CZK 4,020 per year or CZK 335 per month.
The discount for the placement of a child, the so-called "nursery fee", can now be claimed by a personal income taxpayer in an amount based on the proven costs incurred, but not more than the minimum wage for 2023 (CZK 17,300) for each dependent child.
Spouse discount only under certain conditions
As regards the spouse or civil partner allowance, this will change from 2024 the conditions for entitlement to this tax credit.
The discount will be able to be applied only for the spouse caring for a child under three years of age.
Use of a company car for private purposes
If the employee is allowed to use the official vehicle for private purposes, this is non-cash income of the employee from which it is necessary to make an addition. This is for each month the vehicle is provided to the employee for private use.
- The amount of the add-on is now 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 add-on rate is 0.5 %.
- Consolidation package fromand applies an add-on rate of 0,25 % of the entry price of the emission-free vehicle.
If an employee uses more than one vehicle for private purposes 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 in the above manner is less than CZK 1,000, then the amount of CZK 1,000 becomes the employee's non-cash income.
Limit for employee benefits
Tax exemption for employee benefits to be from 2024 up to half of the average wage in total for all benefits. Benefits exempt from personal income tax are listed in Section 6(9)(d) of Act No. 586/1992 Coll., on Income Taxes.
Compensation for DPN and quarantine will be paid from funds earmarked for staff salaries
At present, compensation for temporary incapacity for work and quarantine is paid from funds other than those earmarked for salaries. The new the compensation for DPNs and quarantine is paid from the funds earmarked for staff salaries.
Participation in social insurance for employees working on a FTE
The consolidation package is to change the insurance participation of employees working on the basis of a work performance agreement.
Staff working on the basis of a temporary employment contract with one employer will have a threshold for participation in social insurance of 25 % of the average wage in the aggregate of all FTEs at the employer.
If the employee has multiple FTEs with multiple employers, will participate in the insurance at the moment when the total income from these FTEs exceeds the threshold of 40 % of the average wage.
The agreements will be recorded 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.
There are still many question marks as regards agreements outside the employment relationship. However, we are monitoring any changes and will keep you updated.
