New tax credit amounts per second and third child in 2021 taxable period

An amendment to the Income Tax Act, which is part of the amendment to the Act on State Social Aid and introduces a higher annual tax credit per second, third and any subsequent child while simultaneously abolishing the maximum monthly tax bonus limit of CZK 5,025 for the 2021 taxable period, was promulgated in the Collection of Laws on 27 July 2021.

The tax credit per second child shall increase from an annual CZK 19,404 to CZK 22,320; the tax credit per third and any subsequent children from CZK 24,204 to CZK 27,840, in both cases retroactively for the 2021 taxable period. The tax credit per first child remains unchanged, amounting to CZK 15,204 a year.

In accordance with the amendment’s transitory provisions, the new annual tax credit amount per second and third child can only be claimed in personal income tax returns or annual settlements of tax on wages for the 2021 taxable period. This change will not affect the monthly calculation of prepayments of income tax on wages earlier than 1 January 2022. The existing monthly tax credit amounts per second, third and any subsequent children shall be used for the rest of 2021.

The amendment to the Income Tax Act also removes an inconsistency arising from the abolishment of the annual limit for the tax bonus that may be payable to taxpayers if their child credit for the year exceeds their tax liability, put into effect via the tax package effective 1 January 2021, but without making necessary changes to keeping monthly payroll records. According to transitory provisions, the monthly tax bonus amount limit remains unchanged for the rest of 2021; subsequently, the final settlement will be made in the annual settlement of tax on wages or in income tax returns for 2021, as the maximum annual tax bonus amount was cancelled via the tax package.

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