What has the “consolidation package” brought us in the area of wages?
In our latest newsletter, we therefore provide you with a basic overview of the most important elements of the consolidation package, with a number of the measures coming into force on 1 January 2024.
Some of the measures that are due to come into force at a later date have not yet been finalised. We will continue to closely monitor the developments regarding the consolidation package and will keep you informed of further news.
If you have any questions, please do not hesitate to contact us; our experts will be happy to advise and assist you.
Sickness insurance for employees
Sickness insurance on the employee’s side at the rate of 0.6% of the assessment base has been introduced. For employees, this means that they will pay a total levy of 7.1% for social security instead of the current 6.5%.
Change in income tax relief for employees
Spouse relief
For the year 2024, the conditions for entitlement to a tax relief for a dependent spouse living in the same household as the taxable entity have been amended so that the relief can only be claimed if the spouse is caring for a child under 3 years of age.
The condition of annual income of up to CZK 68,000 remains in force. Examples of income include gross wages, gross business income, rental income, social security pensions (old-age, disability pensions), sickness benefits, maternity benefits (not parental allowance) and unemployment benefits.
In the annual settlement for 2023, everything remains unchanged.
Kindergarten fees
The relief for demonstrably paid expenses incurred by the taxable entity for the placement of a dependent child in a pre-school institution, the so-called kindergarten fees, has been abolished.
For the year 2023 (in the annual settlement/tax return), the relief can still be claimed. The maximum amount of the relief equals the minimum wage, i.e., CZK 17,300.
Student relief
The student relief will be abolished as of 1 January 2024.
Deduction for union membership fees
This deduction for 2024 will be abolished.
Deduction for further professional qualifications
This deduction for the cost of examinations certifying the results of further education will also be abolished as of 2024.
Additional taxation of company vehicles provided for private use
A third group of vehicles – the so-called emission-free vehicle – has been introduced.
If an employee is provided with a company vehicle, additional taxation of 1% of the entry price of the vehicle for each (commenced) calendar month in which the vehicle is available to the employee shall apply as part of the employee’s wages.
Additional taxation of 0.5% of the entry price of the vehicle shall apply to low-emission vehicles.
Additional taxation of 0.25% of the entry price of the vehicle shall apply to emission-free vehicles.
Non-monetary benefits
With effect as of 1 January 2024, a limit for the exemption of non-monetary “leisure” benefits has been introduced, namely at one-half of the average wage. For 2024, it will be possible to exempt these benefits up to an aggregate of CZK 21,983 per year.
The limit for the exemption of the so-called meal voucher flat rate shall also apply to non-monetary meal allowances.
The benefits provided by the Cultural and Social Needs Fund have been abolished.
Personal income tax progression adjustments
There are now two income tax rates, 15% and 23%, with the higher rate being paid on income exceeding 4 times the average wage (currently about CZK 161,300). As of 1 January 2024, the threshold at which the higher rate applies will be reduced to 3 times the average wage, i.e., approximately CZK 121,000 per month.
The shift will also affect self-employed persons, who will pay the higher tax rate on profits exceeding 36 times the average wage instead of 48 times as it is now.
Higher levies for self-employed persons
In the period of 2024-2026, the minimum assessment base for social security contributions of 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 minimum wage.
Self-employed persons will also pay insurance contributions on at least 55% of the tax base (now they pay them on 50% of the tax base).
Capping of tax relief for agreements to complete a job
There will be two new thresholds for participation in the insurance of an employee who works under an agreement to complete a job (and thus for the payment of social security contributions – but not for health insurance; this is a discrepancy and it has been proposed to re-draft the regulation – given the expected force as of 1 July 2024, the discrepancy will hopefully be resolved).
The first threshold will apply to an agreement to complete a job concluded with a single employer, at 25% of the average wage.
The second (higher) threshold will be set for the participation in insurance in the case of simultaneous multiple agreements to complete a job with multiple employers, at 40% of the average wage.
If one or the other threshold is exceeded, insurance contributions will be payable.
Stricter requirements for the entitlement to unemployment benefits
The amount of time that people will have to work and be insured under pension insurance before they can claim unemployment benefits again has increased.
