Personal Income Tax Returns for 2021
With the upcoming season for filing tax returns for 2021, we would like to briefly summarise selected news for this tax period. The changes were introduced mainly by the so-called 2020 tax package, which we informed you about in our News 1/2021 – The 2021 Tax Bundle.
Gross income instead of super gross wages, change in tax rates
From the beginning of 2021, the super gross salary tax base and the 7% solidarity tax surcharge have been abolished. From 2021 onwards, only gross salary has been the partial basis for income tax from employment. At the same time, progressive taxation was reintroduced:
- the tax rate of 15% will be applied to tax base up to 48 times the average wage (i.e. up to CZK 1,701,168 in 2021);
- the taxable amount exceeding this limit is taxed at a rate of 23%.
Whereas in previous years only income from employment and independent activities were subject to a higher taxation (solidarity tax surcharge), from the 2021 tax year, any income taxed through a tax return that exceeds the threshold in the total tax base will be taxed at a higher rate.
Therefore, if the taxpayer’s income from employment is already “above the ceiling”, his/her other income taxed in the tax return will be subject to tax rate of 23% (e.g. rental income or income from selling securities).
However, the law does allow for foreign source income (e.g. interest and dividends) to be included in a separate tax base and still be taxed at a rate of 15%.
At the same time, it should be noted that with the abolition of the solidarity tax surcharge, the obligation to file a tax return on the grounds of high income from employment (as was previously the case when exceeding 48 times the average wage) has been abolished. If the other statutory conditions are met, these “high income” employees can also be subject to an annual tax reconciliation processed by the employer and do not need to file a tax return.
Tax deductions
The basic taxpayer discount for 2021 was increased to CZK 27,840. The tax deduction for the first child has remained unchanged at CZK 15,204, the deduction for the second child has been increased to CZK 22,320 and the deduction for the third and each subsequent child is CZK 27,840. At the same time, the limitation on the maximum amount of the tax bonus (i.e. the difference between the tax liability and the total tax deduction for children; until 2020, it was possible to claim a tax bonus up to a maximum of CZK 60,300 per year) was abolished.
The maximum “kindergarden fees” that can be deducted from the tax liability for 2021 amount to CZK 15,200 per dependent child.
Deduction of interest on loans from the tax base
Another change is the reduction of the maximum amount of interest that can be claimed as an item deductible from the tax base. For interest on a credit from building savings, on a mortgage credit granted by a bank and on a credit granted by a building society to finance housing needs, to repay a credit or a loan used to finance housing needs, the maximum annual amount of interest has been reduced to CZK 150,000 for one jointly managed household. However, this lower amount will only apply in cases where the acquisition of housing needs took place from 1st January 2021 (the date of registration of the ownership right in the Cadastre of Real Estate is decisive). The maximum aggregate amount of CZK 300,000 per year will continue to apply to interest on loans for financing housing needs acquired before 31st December 2020, i.e., including any new loans to refinance a previously concluded loan.
Deduction of gifts from the tax base
For the tax period of 2020 and 2021, the maximum amount for deducting gifts has been temporarily increased. Therefore, gifts up to 30% of the tax base can be deducted in 2021. Gratuitous transactions for so-called charitable purposes can be deducted if they exceed at least 2% of the tax base in a given year or amount to at least CZK 1,000 provided other statutory conditions are met.
Missing form for electronic submissions
The deadlines for filing tax returns remain unchanged. The basic deadline for filing paper return is 1st April 2022. If the taxpayer submits the tax return electronically, the deadline for this filing is 2nd May 2022. Tax returns of taxpayers with a statutory obligation to have their financial statements audited and tax returns filed with the authority by a tax advisor based on Power of Attorney must be filed by 1st July 2022. The Power of Attorney no longer needs to be filed with the tax authorities by the end of March but, as last year, it is sufficient to deliver it to the tax office no later than 1st July 2022 together with the tax return.
The Financial Administration has not yet published an electronic tax return form and, according to current information, this form is not expected to be available until mid-February 2022 at the earliest.
We will be happy to advise you on processing your tax return.
Your WTS Alfery team