What’s new in tax for employees in 2023?
With the new year come changes in employee taxation as well as social security and health insurance. The maximum assessment base for social security contributions has increased and the limit from which wages are taxed at 23% has been raised. Many employers will be keen on the possibility to apply a discount on insurance premiums for selected ‘vulnerable’ employees in part-time employment. And after almost twenty years, the income threshold for the obligation to file a personal income tax return has been significantly increased.
Increase in maximum annual assessment base
The maximum annual assessment base for social security contributions has increased to CZK 1,935,552. This change will also affect personal income tax: employees' income exceeding this amount will be taxed at a 23% rate (for monthly wages, the threshold for the application of the 23% rate is CZK 161,296). To income under this limit, the 15% tax rate will continue to apply.
Increase in minimum wage
From January 2023, the minimum wage has been increased from CZK 16,200 to CZK 17,300 and the minimum guaranteed hourly wage has risen to CZK 103.80. Consequently, the minimum monthly assessment base for health insurance for employees has also been increased. This also results in an increase in the tax credit for placing a child into pre-school facilities and the income threshold for the entitlement to the payment of a tax bonus for a child.
Obligation to file personal income tax returns
The income threshold at which an individual is obliged to file an income tax return will increase from the current CZK 15,000 to CZK 50,000 per year. The new threshold will first apply to tax returns to be filed in 2024.
At the same time, employees will be able to earn more taxable income from sources other than employment for the 2023 taxable period without having to file an income tax return. This limit has increased from CZK 6,000 to CZK 20,000 per year. Employees will also be able to ask their employer to carry out a year-end settlement of tax on wages for them if they meet further statutory requirements.
Income threshold for sickness insurance
The employees' income qualifying for sickness insurance has increased to CZK 4,000 per month from January. For agreements to perform work, income up to this threshold will thus not be subject to social and health insurance contributions. At the same time, provided that other conditions set out in the Income Tax Act are met, income up to this limit will be subject to withholding tax (for agreements to complete a job, the limit for the application of withholding tax of CZK 10,000 remains unchanged).
Discount on insurance premiums for selected employees in part-time employment
From 1 February 2023, employers will be able to benefit from a 5% discount on social security contributions for selected employees (e.g., under 21, over 55 and other) working part-time. Instead of the standard 24.8% of the assessment base, employers will pay only 19.8%. More details about this change can be found in the August 2022 Tax and Legal Update.