Solidarity tax in the Czech Republic – what is it?
Czech Solidarity Tax
Solidarity tax is cancelled in 1.1.2021. The income tax amount is increased to 23% for the income above 1.695.168 CZK in 2021/2022
Solidarity tax is new here. It appeared in 2013 as a response to the economic crisis. This type of tax is obligatory for employees and business persons with an exceptionally high income.
The sum is 7% of an income. Here, it is meant an income from business or your salary. If you have any other income (rents, dividends, etc.) it doesn’t count here.
WARNING!: from your income also has to be paid a classic income tax (15%)
Limit of an income for solidarity tax was set: 1.672.080 CZK/2021 annual income limit -> Your income: 2.000.000CZK/annual -> Your income minus annual -> income limit = 327.920 CZK -> 7% of 327.920 CZK = 3.286,2 CZK
The limit of an income for solidarity tax was set: 139.340 CZK/2020 month gross salary limit -> Your income: 1.670.000CZK/annual -> You get the solidarity tax payment back because your annual income was less than an annual limit.
Note: Solidarity Tax also needs to be mentioned on your Tax Report. It is line no. 59
The solidarity tax appeared in 2013 as a response to the economic crisis. This additional type of tax was obligatory for the employees and the businessmen with an exceptionally high income. Following 1.1.2021, the solidarity tax has been replaced by a different tax system, which is explained at the end of this article.
Tax reports for 2021
The sum for the solidarity tax has been 7% of the income that has exceeded a certain threshold (48 x average Czech monthly salary). If you have any other income (rents, dividends, etc.), it is not included in the solidarity tax.
WARNING! alongside the solidarity tax, you still need to pay the classic income tax (15%)
For the employees, the solidarity tax is paid on a monthly basis and it is only applied if your gross income exceeds the set monthly threshold. In this case, your employer pays this tax for you. Since it is paid on a monthly basis, it is only deducted on the months you exceeded the threshold (for example if you receive a one-time bonus). Afterwards, if your overall annual income does not exceed the annual threshold, you can ask for the 7% that was deducted to be claimed back in your next salary. However, if the monthly or annual limit was exceeded, it is obligatory for the employee to hand in a Tax Report.
Note: Solidarity Tax needs to be mentioned on your Tax Report. It is line no. 59
If you are self-employed(OSVČ), similar rules apply to you. However, you calculate the solidarity tax only if your annual income is higher than the mentioned threshold after you deducted your recognizable (tax-deductible) expenses. If you do not exceed the threshold, you do not have to mention the solidarity tax on your Tax Report.
The examples of the solidarity tax can be seen below:
The limit of an income for the solidarity tax was set as: 1.672.080 CZK / 2021 annual income limit ->Your income: 2.000.000 CZK/annual ->Your income minus the annual income limit = 327.920 CZK -> 7% of 327.920 CZK = 3.286,2 CZK.
The limit of an income for the solidarity tax was set as: 139.340 CZK / 2021 month gross salary limits -> Your income: 1.670.000 CZK/annual -> You can claim the solidarity tax payment back because your annual income was less than the set annual limit.
It is also important to note, that for your health insurance, the payment rises simultaneously with your salary even over the solidarity tax limit, however, you do not have to pay social security contribution on the amount of money over the solidarity tax limit.
Unfortunately, you cannot apply tax deductions (for example mortgage interest or donations) on the part of your income that is subjected to solidarity tax.
Tax reports for 2021
Following 1.1.2021, the system of these income taxes in the Czech Republic has changed. The solidarity tax has been replaced and instead, if your gross monthly income exceeds 141.764 CZK (four times the amount of the average Czech gross income), your tax rate will automatically change from 15% to 23% on the amount over the limit. It may seem as if nothing has changed when it comes to the amount of tax you need to pay over the threshold, however, your passive income such as rents etc. are now included in your annual income.
Similarly to how it was with the solidarity tax, there is no limit on when paying health insurance, but you do not need to pay social security contribution on the amount of income over the annual limit of 1.701.100 CZK.