Pre-school and school fees as employee benefits
We are continuing our series of articles focusing on the introduction of Single Monthly Employer Reporting (in Czech Jednotné měsíční hlášení zaměstnavatele or JMHZ) from the perspective of selected employee benefits that may be subject to JMHZ. This time, we look at the payment of pre-school and school fees for employees' family members - a very common benefit that has its own tax implications.
The introductory article on this topic can be found here.
Pre-school fee contributions
Many employers and their employees were unpleasantly surprised at the beginning of 2024 after the introduction of the exemption limit for selected leisure-related benefits. Despite the political support for the part-time work for parents or the development of various forms of pre-school education, the new exemption limit also applied to the employer's non-financial contribution for pre-school fees for employees' children. Thus, especially in the case of private nurseries, a parent could exhaust the exemption up to the limit in the first few months of the year.
Following an uproar in the media, the Ministry of Finance first issued its Information on the Methodology for the Valuation of Pre-School Fees and promised to treat the procedure legislatively as well.
The amendment to the Income Tax Act in effect from 1 July 2024 incorporated the new method of valuation of this type of benefit, i.e., pre-school fees paid by the employer for an employee’s family members, directly into the Income Tax Act. It was set to take effect retroactively from 1 January 2024.
The amendment to the Income Tax Act established a special valuation method for this non-financial income on the employee’s part: the value of this benefit may be set by the employer based on the price that is usually applied in the place and time for pre-schools established by municipalities, regions or the state or set at the amount corresponding to the highest monthly payment for pre-school education according to the decree regulating pre-school education. Thus, pre-school fee benefits may amount to a maximum of 8% of the minimum wage per calendar month per child (CZK 1,664 for 2025) but may also be lower (corresponding to the usual price).
This means that regardless of the actual employer's contribution (expenses), which can be tens of thousands of crowns per month in the private sector, this benefit will only be included in the employee’s exemption limit up to the amount set by the above valuation methods.
At the same time, the employee's own contribution, if any, to the payment of school fees must also be considered. If the employee’s contribution amounts to the value of the benefit as determined by the employer under the Income Tax Act (i.e. the usual price or the highest monthly payment under the decree), the benefit will not arise at all on the part of the employee even if the actual amount of pre-school fees paid by the employer is higher.
The special valuation rules will not apply just to pre-school fees paid to other pre-school facilities but also to corporate pre-schools.
Once the aggregate of the leisure-related benefits exceeds the exemption limit, the contribution for pre-school fees becomes an employee’s taxable income subject to social security and health insurance contributions.
If the contribution for pre-school fees is exempt from income tax on the employee's part, it constitutes a tax non-deductible expense for the employer up to the amount of actual expenses incurred for this benefit regardless of the valuation on the employee's part. The contribution becomes tax deductible (again up to the amount of actual expenses) once the value of the benefits provided exceeds the statutory exemption limit, provided that the employee's entitlement to the contribution arises from a collective agreement, an employer's internal regulation, an employment or other contract.
The employer may choose an alternative option and treat the expenses as tax deductible under a special provision of the Income Tax Act. In that case, the non-financial income on the employee’s part will be considered taxable up to the usual price or the highest monthly payment under the decree. It will also be subject to mandatory insurance contributions.
For the sake of completeness, please note that a financial contribution for pre-school fees will always be taxable in full.
Contributions to education of other family members
Benefits in the form of non-financial contributions for school fees or for education other than that provided by facilities for pre-school children are valued standardly: their value is determined based on the usual price, most often in the amount of expenses actually incurred by the employer (unless the expenses are affected by, e.g., a specific relationship between the employer and the educational institution).
Contributions for other forms of education are also included in the statutory limit for the exemption of leisure-related benefits (half of the average wage per year), but in their full amount. In general, this could include school fees or education other than pre-school education for children of employees, as well as various forms of education for other family members.
It is generally true that non-financial contributions to school fees that are tax exempt for the employee shall always constitute tax non-deductible expenses for the employer. If the leisure-related benefits exceed the given limit, the portion of the benefits above the limit becomes taxable income for the employee and the employer can claim that portion of the benefit as a tax deductible expense.