The Czech Solidarity tax (solidární daň) is also colloquially called Millionaire tax (milionářská daň). It is an additional 7% tax applicable on income of high-earning individuals. You may not think of yourself as a millionaire, but the Czech Tax Office’s opinion might differ from yours. You can easily get into this group if, for example, you receive a major bonus at work. Another great example is when you lose your job and receive a severance payment. So, how should you know if this is relevant for you? Well, the simplest indicator that everyone can easily understand is your monthly net income, or the money that lands in your bank account. If you make over 92 213 CZK after tax in any given month, you need to learn more about Czech solidarity tax. So, let’s look into it.
What is Czech solidarity tax?
If you are one of those people who have to submit their annual tax return in Czech Republic, you may need to calculate an additional 7% solidarity tax on your income that exceeds a certain threshold. This threshold is defined as “48 x average Czech monthly salary”. So, for example, when it comes to the money you made in 2019 it is 1 569 552 CZK. This solidarity tax is only applicable on your income sourcing from employment or entrepreneurship, but not on other types of income, like rent, capital gains etc. So, let’s have a look at details of solidarity tax for employees and self-employed separately.
Czech solidarity tax for employees
Employees in Czech Republic have their solidarity tax paid by their employer on their behalf on monthly bases. This tax is paid only for months when your employment income exceeds the monthly threshold, which is obviously 1/12 of the annual one.
It’s important to note that here we are talking about your gross income. So, it doesn’t include the social security and health insurance contributions that your employer makes for you. However, it does include contributions your employer makes on your behalf in these categories, i.e. withholds from your salary before your net earnings land in your bank account.
So, let’s look at a practical example. Imagine that in May you get a major bonus! And let’s say it brings your total gross earnings in that month to an amount that is above 1/12 of the above-mentioned threshold, e.g. above 130 796 CZK in 2019. In this case, your income above that amount will be taxed by additional 7% solidarity tax.
Typically, you won’t even see this money, because your employer will pay it to the Tax Office, on your behalf. But then, let’s say for the rest of the year you don’t get any extra money. As a result, your annual income ends up being below the annual threshold. If that’s the case, you are eligible to get that 7% solidarity tax back from the Tax Office.
How can employees claim their solidarity tax back?
If your only source of income during the year was that coming from employment, you can simply let your payroll team prepare an annual calculation of taxes (roční zúčtování daně) for you. When they do that, they compare taxes you paid with taxes you should have paid according to the Tax Code. If it turns out that in certain months this 7% solidarity tax was withheld from your salary, but your annual income didn’t exceed the threshold, you will get this solidarity tax back in your next salary.
If your annual income exceeds the threshold, you have to submit your tax return yourself. You can’t rely on payroll to do your taxes for you. The same is true if you have other sources of taxable income in addition to your employment income. In both cases you simply need to ask your payroll team to prepare an annual overview of taxable income (potvrzení o zdanitelných příjmech). You will then use it to fill in your tax return as it contains all the key numbers.
If you are filing your tax return in Czech Republic yourself, and your annual income doesn’t exceed the legal threshold, you can still return the 7% solidarity tax you paid earlier on monthly bases.
Also, remember – you don’t have to have your payroll do your taxes for you. You can always decide to submit your tax return yourself for whatever reason. To fill in your tax return correctly I recommend you read more about filing the Czech tax return process. Also, check out what I wrote about applying all legal Czech tax deductions and discounts. This will not only help you do things quickly and correctly but will also help you maximize the amount you return on your taxes.
Solidarity tax for self-employed in Czech Republic
Self-employed people (OSVČ) in Czech Republic should also pay additional 7% solidarity tax on their entrepreneurship income that exceeds the annual threshold. The threshold amount is the same as for employees, i.e. as 48 x average monthly Czech salary before tax. However, here we are not talking about your gross income. Instead, it’s about what is left after you deduct so called recognizable (or tax deductible) expenses. And, as I wrote in my article about Czech tax deductions, it doesn’t matter if you apply flat rate expenses or do proper accounting.
As a self-employed individual you will need to calculate this additional tax on your income while you’re filling your annual Czech tax return. If your income doesn’t exceed the threshold, you won’t record anything about solidarity tax in your tax return papers.
Can self-employed get their Czech solidarity tax back?
Typically, no! Self-employed file their tax return once a year. This means it happens when your total income for the fiscal year is clear. Therefore, it cannot happen that you’d had paid any solidarity tax prior to submitting your tax return.
However, if you were both employed and self-employed during the year, it might happen. This would be the case if your employment income exceeded the monthly threshold in some months. So, your employer would pay your solidarity tax on your behalf. In this case, if your combined annual income doesn’t exceed the respective threshold you can still get your solidarity tax back from the Tax Office. For this purpose, you calculate individual parts of your income separately. That means you take gross income for its employment portion, and income minus expenses for its entrepreneurship portion.
Should I also pay income tax, social and health insurance?
You will also need to pay the standard 15% income tax and relevant health insurance contributions from the portion of your income that is a subject of solidarity tax. However, you are not required to pay social security contributions from this income. That is because you should pay social security contributions only on income up to 48 x average Czech salary. Any income above that is except from social security payments. In a sense, solidarity tax comes instead of social security once you reach that income threshold.
Can I reduce my solidarity tax with tax deductions?
Note, you cannot apply tax deductions on the portion of your income that is a subject of solidarity tax to reduce it. So, your mortgage interest, donations and other deductions won’t reduce the amount of solidarity tax you should pay. The government designed deductions and discounts to allow you to decrease the amount of income tax you pay. Income tax is not the same as solidarity tax.
I hope you find this article about Czech solidarity tax helpful. I believe we should all pay our fair share of taxes living in such an amazing country as Czech Republic. But, it’s silly to pay more than what the government defines as fair. If you have extra money, consider donating it to a charity of your choice. But make sure you get your solidarity tax back, when you know you didn’t have to pay it.
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Learn more about Czech taxes in English
- Czech solidarity tax: who pays it and how to get this money back?
- When you don’t need to pay income tax in Czech Republic?
- Czech tax return: tax deductions and discounts you should know about
- Czech tax return: when, how, where? Plus tax advisers who speak English.
- Czech tax return: should you submit it yourself? Czech tax resident vs not.