The Income Taxes Act (Act No. 586/1992 Sb., as amended) has been amended by Act No. 267/2014 Sb. The changes have affected tax credit amounts and rules for granting the credits depending on the number of children living in a common household.
Since January 2015, child tax credits have been increased. The tax credit for a second child has been increased by CZK 200 per month, and for another dependent child, by CZK 300 per month (S. 35c (1)). It is necessary to review during a year whether there is a change in the number of children or whether a dependent child ceases to be dependent, within the meaning of S. 35c (6) of the Income Taxes Act (“ITA”).
Tax credit amounts
|Dependent child under S. 35c (6) ITA||Monthly tax credit||Annual tax credit|
|One child||CZK 1,117||CZK 13,404|
|Second child||CZK 1,317||CZK 15,804|
|Third and following child||CZK 1,417||CZK 17,004|
The amendment to the ITA concerning the tax credits for 2015 entails changes in the forms for taxpayers that will claim tax credits from employers.
The new form “PIT statement” is now entitled Tiskopis MFin 5457 – vzor č. 24. At the same time, the Ministry of Finance has issued a new form for substantiating the entitlement to a tax credit (MFin 5556 – vzor č. 1 – Potvrzení zaměstnavatele druhého z poplatníků pro uplatnění nároku na daňové zvýhodnění).
(Other new forms, relating mainly to employment tax, are available at the Financial Administration website here.)
Under the new rules, tax credits may be claimed from employers in the January 2015 payroll for the first time. To this end, each taxpayer must sign a new form (no. 24) for the PIT statement. The form must state for which children the tax credits are claimed, the tax credit amounts as well as for which dependent child no tax credit is claimed (i.e. all children dependent on the taxpayer and living in a common household). Also, the taxpayer must provide the employer with a certificate from the other taxpayer’s employer (form “ MFin 5556 vzor č. 1”).
The certificate is valid until there is a change of decisive facts. The confirmation must be presented by the taxpayers again if the number of dependent children changes, as a result of which the tax credit amount claimed for another child (children) will change.
Change in the number of children of taxpayers receiving income from employment during a tax period
If there is a change during a tax period in the number of dependent children living in a common household which results in a change of the tax credit pertaining to other children, the taxpayer (employee) is required to notify the employer of the change in writing under S. 38k (8) ITA without delay by the end of the month in which the change occurs. The change must be also marked in the PIT statement, and the tax credit amount for other children must be adjusted (or the entire entitlement can be exercised by agreement with the other taxpayer).
Specifically, if there is a change during a calendar year in the number of children by a child completing their “systematic professional training” (studies), the tax credit amount for a dependent child will change as follows: the tax credit for a following child that was claimed in an amount applicable to a “second child” (CZK 1,317 per month) for the first part of a calendar year will only be claimed in an amount applicable to “one child” (CZK 1,117 per month) for the other part of the calendar year.
Tax credits in cohabitation
To claim a tax credit (particularly from the employer during a year), the common household of cohabitants must be assessed in relation to the taxpayer’s (cohabitant’s) dependent children. In claiming tax credits, their own common children are dealt with first. Only after that is a tax credit claimed for those children that can be considered dependent on one of the taxpayers (cohabitants) only. This is because they are the own children of only one of the cohabitants (from his/her previous relationship).
Až následně se uplatní nárok na děti, které lze ve společně hospodařící domácnosti podle ZDP považovat za vyživované pouze u jednoho z poplatníků (druha/družky), neboť jsou vlastním (z dřívějšího vztahu) dítětem pouze u jednoho z nich.
If, for example, a cohabitant has two more dependent children in a common household from his previous relationships, all children (those he has with his cohabitant as well as his own two children) are assessed together. Given that he is entitled to a tax credit for the two children he has with the cohabitant in an amount applicable to “one child” and a “second child” respectively, he may only claim a tax credit for his other two children in an amount applicable to a “third and each following child”.
Tax credits for children in joint custody
It cannot be ruled out that, when joint custody is awarded by a court to parents (where one common household is non-existent), a tax credit may be claimed by one of the parents for a part of a year and then by the other parent for the other part of the year.
The tax credit amount claimed for the child need not be the same for both parents. This is because the tax credit amount will, in such cases, depend on the number of dependent children living in a common household of two different taxpayers that do not have a single common household together.
Order of disabled children
Where there are several dependent children (e.g. two) and a disabled child, it will be at the taxpayer’s discretion to decide for which child the tax credit will be claimed in an amount applicable to one child, a second child and a third or each following child respectively.
In such a case, the taxpayer may optimise the tax credit and claim a tax credit for the first two children in an amount applicable to one child and a second child respectively, and claim a tax credit for the third, disabled child that is applicable to the third and each following child and is doubled (CZK 34,008 per year, i.e. CZK 2,834 per month).
Below are tax credits explained through an example:
Cohabiting couple, 1 child together, 3 children of the male cohabitee and 1 child of the female cohabitee
The male cohabitee is a widower and has 3 children from his previous marriage living in a common household – Peter, Martin and Tom. The female cohabitee has 1 child from her previous marriage living in the same household (Adele). They have Anna together.
Solution: Given that they have not entered into marriage, each of them may only claim a tax credit for their own children and only one of them (depending on their decision) for their common child. This means that:
- only the man may claim a tax credit for Peter, Martin and Tom;
- only the female may claim a tax credit for Adele; and
- one of them (as they agree) may claim a tax credit for Anna which will be the amount applicable to “one child” (1) because it is their common child and this tax credit will be the first to be settled by the cohabitants.
The male cohabitee has 4 dependent children (Anna, Peter, Martin and Tom) in a common household and may claim a tax credit for Anna in an amount prescribed for “one child” (1) (unless it is claimed by the female cohabitee) and is entitled to a tax credit for Peter, Martin and Tom in an amount prescribed for a “second child” and an amount applicable to the “third and each following child” (2+3+3).
The female cohabitee has 2 dependent children (Anna and Adele) in a common household. She may claim a tax credit for Anna in an amount prescribed for “one child” (1) (unless it is claimed by the other partner) and is entitled to a tax credit for Adele in an amount applicable to a “second child” (2).
Please do not hesitate to contact our RSM CZ payroll specialist if you have any questions regarding this matter.