The minimum wage was increased as of 1 January 2020 by CZK 1,250 to CZK 14,600.
The increase of the minimum wage has an impact not only on the employer, who is obliged to pay the salary to his employees reaching a minimum of CZK 14,600 per month for the “lowest” group of jobs, but at the same time it also has an effect on tax and other liabilities.
According to the Income Tax Act, in some cases the minimum wage has an impact on the total tax liability. The above-mentioned relates for example to income, which the taxpayer obtains in the course of the year in the form of pension payments. The tax-free sum, which the taxpayer does not declare and tax in the given taxable period, is set based on the minimum wage. A total sum of this income, which does not exceed 36 times the minimum wage, i.e. in the year 2020 regularly paid pension up to CZK 525,600 (CZK 43,800 per month) is exempt from taxation.
The increase of minimum wage is also reflected in the area of tax deductions. The adopted change impacts the chance of parents to receive a tax advantage in the form of a so-called child tax credit. The child tax credit represents the part of the child tax deduction that exceeds the final tax and is actually paid by the tax office to the taxpayer. With the increase of the minimum wage, the specified limit for the possibility of obtaining tax credit raises. In 2020, a taxpayer, whose income reached at least 6 times the minimum wage, i.e. a parent with annual income exceeding CZK 87,600, is entitled to the tax credit. Here it needs to be noted that this income currently includes only taxable income from employment or self-employment, i.e. the taxpayer’s “active” income.
The rate of the minimum wage also impacts the maximum possible tax deduction of “kindergarten fees”. The allowance for placing a child in a childcare facility corresponds to the expenses provably spent by the taxpayer on placing a dependent child in a pre-school facility, but only up to the level of the minimum wage per every dependent child.
In addition, the minimum wage impacts also the minimum health insurance payments for employees as well as for persons without taxable income. Persons without taxable income generally do not perform gainful activity, employed or self-employed, during the entire calendar month, but at the same time they do not fulfil the conditions for so-called state-insured persons, for whom the minimum insurance is paid by the state. In case of persons without taxable income, the minimum wage is their assessment base and in the year 2020 as a result of its increase, they are obliged to pay CZK 1,971 per month to health insurance companies, i.e. 13.5 % from CZK 14,600. At the same time, this minimum payment needs to be observed by employers for instance in case of an employee, who works part-time for lower than a minimum wage, or an employee on unpaid leave. Such an employee should prove to his employer that for example at a different employer the minimum payment of insurance is settled.
Another indirect effect of the increase of minimum wage is on persons registered at the labour office who can earn a maximum of CZK 7,300 extra, i.e. up to a half of the minimum wage.