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Dear Readers,

We informed you about an increase in the average salary from 2024 in our Short News for October 2023. This article brings summarised information about additional areas affected by the average salary’s change.

How is the Average Salary’s Level Determined?

Average salary is calculated as a product of the general assessment base for a calendar year that preceded the calendar year, for which the average salary is calculated, by two years multiplied by a conversion factor for adjustment of the general assessment base. The resulting amount is rounded up to whole crowns. 

The change in the average salary affects the following:

1. The threshold for application of the individual income tax rate at  23%;
2. The minimum insurance premium advance for self-employed individuals;
3. The maximum assessment base for social security;
4. The amount crucial in determining employees’ participation in sickness insurance;
5. Restrictions in employee benefits (pursuant to Section 6 (9) (d) of the Income Tax Act); and
6. The monthly payment for taxpayers in the lump-sum tax regime.

1. Threshold for Application of the Individual Income Tax Rate at  23% 

As a result of the increase in average salary, the threshold crucial in applying the tax rate at 23% in calculating advances for tax on dependent activities and in calculating individual income tax will rise.

In case of monthly individual income tax advances from dependent activities, the income tax advance will be paid at 23% of the portion of income that will exceed the amount equalling three times the average salary for a calendar month. As a consequence, this threshold for 2024 is CZK 131,901. 

The tax rate at 23% will be applied to the portion of the individual income tax base exceeding the amount of CZK 1,582,812 for calendar year 2024 (36 times the average salary). 

This key amount was reduced from 48 times the average salary to 36 times the average salary in the consolidation package effective from 1 January 2024. 

2. Minimum Insurance Premium Advance for Self-employed Individuals

• Social (Pension) Security

The minimum advance will be increased to the amount of CZK 3,852 for self-employed individuals performing main activity for 2024. 

A reduced advance is newly introduced for new registered self-employed individuals. If a self-employed individual commenced his or her independent income-generating operation that is performed as a main activity and that was not performed for a period of 20 calendar years before the year of such activity’s commencement, the minimum monthly assessment base is 25% of the average salary in the year of the independent income-generating operation’s commencement and in two immediately following calendar years. The minimum level of insurance premium advances will therefore be CZK 3,210 for 2024.

The minimum advance for self-employed individuals performing secondary activity will be increased to CZK 1,413 for 2024. 

The amount material in determining mandatory participation in pension insurance for a self-employed individual performing secondary activity is CZK 105,520 for 2024. 

• Public Healthcare Insurance

The minimum healthcare insurance advance is CZK 2,968 for 2024.

Please be advised that the minimum healthcare insurance advance is only set forth for self-employed individuals performing main activity. Self-employed individuals who perform secondary activity are not obliged to pay minimum advances. 

3. Maximum Assessment Base for Social Security

The maximum assessment base for social security is increased to CZK 2,110,416 in social security from 2024. The maximum assessment base is identical for self-employed individuals and employees and applies to total income from both dependent and independent operation in the particular year. 

4. Amount Crucial in Determining Employees’ Participation in Sickness Insurance

The average salary’s value is also of key importance in determining the amount material in determining employees’ participation in sickness insurance (1/10 of the average salary rounded down to whole CZK 500); as a result, the material amount is CZK 4,000 for 2023.

5. Restrictions in Employee Benefits

The consolidation package specifies a threshold for exemption from income tax for employee benefits pursuant to Section 6 (9) (d) of the Income Tax Act at 1/2 of the average salary for a taxation period. As a result, such non-monetary benefits will be exempt for employees only up to the amount of CZK 21,983 in 2024.

We provided details on changes in employee benefits from 1 January 2024 in our article Consolidation Package 2024: Income Taxes.

6. Monthly Payment for Taxpayers in the Lump-sum Tax Regime

The uniform monthly payment to tax offices for taxpayers who are in the lump-sum tax regime will also increase from 2024. The level of the monthly lump-sum tax advance in 2024 is provided in the following table.

The table below shows a summary of all pieces of information provided above.

If you need additional information with regard to this article, please feel free to contact us. We are ready to help you.

Marek Švanda                                                  Michaela Kozminská
svanda@edmutilitas.cz                                    kozminska@edmutilitas.cz