What’s new in tax for employers and employees in 2021?

Changes in effect from 1 January 2021:

• From now on, only employees’ gross income will be subject to income tax. Apart from a 15% income tax rate, the amendment introduces another rate of 23% that should be applied to income above 48 times the average wage. When recalculated to annual income, the second rate will apply to income exceeding CZK 1,701,168 a year (i.e. monthly income of more than CZK 141,764). Employers should first apply this procedure when preparing their payroll for January 2021.
• As a result of the abolition of the super-gross wage, the gross amount of remuneration for exercising the office of member of a corporation’s body considered to be a Czech tax non-resident will be taxed by a 15% withholding tax only, applied to the gross remuneration irrespective of its amount. 
• Employees that have so far been obligated to file income tax returns only owing to the fact that their annual income from dependent activity was subject to the solidarity tax surcharge will be relieved from this obligation effective from the 2021 taxable period. These employees will be able to ask their employers to prepare their annual settlement of tax on wages in a standard manner as other employees.
• The basic tax relief per taxpayer will increase to CZK 2,320 a month (CZK 27,840 a year).
• The maximum assessment base for social security insurance purposes will be CZK 1,701,168 in 2021. As previously, health insurance premiums will be paid from all incomes generated by an employee without applying any maximum assessment base.   
• From 1 January 2021, the minimum wage will increase from CZK 14,600 to CZK 15,200, which will affect the following amounts: 
  • The minimum monthly health insurance premium calculated from the minimum assessment base, or the minimum wage, will be CZK 2,052.
  • The tax credit for placing a child into pre-school facilities will increase to CZK 15,200 for each maintained child. 
  • The entitlement to the payment of a tax bonus per child for 2021 will arise after generating income from dependent and business activity up to 6 times the minimum wage, i.e. CZK 91,200 a year (CZK 7,600 a month). Moreover, the maximum tax bonus amount has been cancelled. 
• The employee’s income threshold for mandatory sickness insurance premiums will increase to CZK 3,500 a month. Consequently, income up to this limit from an agreement to perform work will not be subject to social and health insurance but will be subject to withholding tax, similarly as in the case of agreements to complete a job where the limit of CZK 10,000 remains in effect, unless the employee signs a declaration of the taxpayer liable to personal income tax from dependent activity with the employer.  
• Employers may contribute to their employees’ meal allowances also in monetary form: on the employee’s part, a monetary contribution will be treated as income exempt from both tax and mandatory premiums up to 70% of the meal allowance amount as set by the Labour Code for business trips lasting 5-12 hours. On the employer’s part, this will be a tax-deductible expense with no limitation.  
• The limit for reporting tax-exempt income or income that is not subject to tax in the Czech Republic under a double tax treaty will increase to CZK 300,000 a month per one non-resident. Under the amendment, the taxpayer will only have to report income not subject to tax once a year, always by 31 January of the following year.