Children tax benefits in Czechia

2018-03-08 10:46:45

This is about tax benefits for children and changes in providing the tax bonus.

This important news was introduced by the Czech Ministry of Finance along with the revised Law on State Social Support. It means that parents will be able to save on income taxes in 2018 more than they did in the previous year.

The larger discounts for parents who have two and more children were approved by the recent change in laws last spring and entered into force in July, 2017. Employees already saved their salaries in January, 2018. For sole proprietors this modification affects the money refund and the level of the income tax for the 2017 tax year when submitting an annual tax declaration.

Specifically the Law on State Social Support decides the tax benefit for the first child (in a jointly managed household). The legislators increased it from 13 404 to 15 404 korunas per year, starting from January, 2018. Sole proprietors can use the increased discount when submitting the Declaration on incomes for 2018.

The tax benefit for the second child was increased from 17004 to 19404 korunas per year (i.e. from 1417 to 1617 korunas per month).

Good news for those who use fixed costs!

The possibility to apply bonuses for children or a discount for an unemployed wife (24 840 CZK per year) returned to those who apply one-time expenses in the calculation of the tax – a lump-sum contribution (Pausal).

A benefit that is offered to taxpayers in the scopes of the governmental tax package is granted only if the taxpayer takes care of a minor child in the joint household. An exception is if the taxpayer has an adult child under the age of 26, who is a full-time student and is a dependent, and is studying at a college, institute, etc.

For children with disabilities who have a ZTP/P card, the tax discount is doubled. Thus, the discounts were increased by 200 and 300 per month in 2017 for healthy children, and by 400 and 600 CZK for children with disabilities.

Annual benefit for children with disabilities:
the first child: ZTP/P = 26 808 korunas per year (no change);
the second child: ZTP / P = 38 808 korunas per year (monthly increase of CZK);
the third and subsequent child: ZTP/P = 48 408 korunas per year (monthly increase of CZK).

Adjustments of the tax bonus:
If a taxpayer has no children, when such a taxpayer has a negative tax for a year, he does not pay the state income tax, and the state returns nothing to him.
If a taxpayer has children, when there is a negative tax after using the discounts for children, taxpayers are entitled to a tax bonus.

What is a tax bonus?

After applying discounts for children, people with low incomes can obtain an income tax in a negative value. In other words, if the tax is lower than the child benefit, overpayment is created, and it turns into a bonus. Then the state pays this sum back. Maximum bonus amount for all children is 60 300 CZK. This limit has not changed since 2016.

Only those who earn at least six times the minimum wage a year are eligible for the bonus. Minimum wage level in 2017 was 11 000 CZK per month, which means that the annual income should be more than 66 000 korunas. Over the next year, due to a significant increase in the minimum wage (12.200 korunas) this limit was increased to 73,200 korunas.

Income to which the bonus is distributed can be gained from renting, business activities, employment, or financial investments.

If there is only income defined by the Section 10 of the Law on the income tax – other incomes, such a taxpayer is not lucky: he does not receive the bonus from the state even if the incomes increase the 66000 korunas/year limit.

The requirements on receiving the bonus have become more complicated to comply with since 2018. In addition to other incomes, the profits from renting or financial investments are excluded. Practically, it means that only ones who are employees or own a business can get the bonus.

Conditions to receive bonuses for children

Only one of the parents has a legal right for a discount for a child or children. If a family consists of two working parents, a tax payer is to attach the confirmation (statement) of the second parent that he/she did not use the bonus to reduce his/her tax rate to the Declaration on the income tax. Employed parents are provided with the confirmation from the employer, and in case of sole proprietors or unemployed people, it is necessary to submit the Declaraion (Čestné prohlašení) of the second parent. The tax department has a right to request submitting the confirmation from the kindergarten, school or higher institution on enrolment of the child that will prove the fact of child’s presence on the Czech territory.

If anything is unclear, you are welcome to ask the professionals.
We have been providing the accounting services in the Czech Republic since 2006.

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