Annual payroll agenda

In the last newsletter we explained how to handle pension insurance records and compulsory share of employees with disabilities statement. Let’s take a look at annual tax reconciliation now.

Annual tax reconciliation

Substitution of annual tax reconciliation (henceforth “ATR”) and income tax return is a common mistake. Although these concepts are in many ways similar to each other, it is crucial to distinct between them. The main reason is that a person who is obliged to submit a tax return can not request ATR.

During calendar year only advance tax is deducted from an employee’s income. These advances can be settled after the year and ATR is one of the possibilities how to achieve that. Settlement can be processed through tax return as well, but a lawmaker transferred this duty from the tax office to the employers for a big group of people by creating the concept of ATR.

What’s the main difference then? Tax return is submitted by employees by themselves to the tax office, eventually they can submit it through a certified tax advisor. ATR is processed by an employer free of charge, if an employee requests to do so and other conditions are met.

Who can request ATR? Simply said, only an employee, who have had one employment income or more employment incomes which didn’t overlap under a condition that this employee also signed tax declaration for all these employers, can request ATR. At the same time, this employee can not have other incomes based on section 7-10 of Czech income tax law altogether higher than CZK 6.000. Such incomes are for example: business income, rent income, dividends, sale of securities etc. Furthermore, the income tax law states other situations when an employee is obliged to submit a tax return, e.g. when yearly taxable income exceeds 48 times the average monthly salary or when an employee terminated private life insurance his employer had contributed to or if employee had used tax allowance for his own contributions to this life insurance in previous years.

In ATR (and tax return) there can be applied tax relieve for husband/wife with yearly incomes (taxable and non-taxable) not higher than CZK 68.000, tax relieve for paid kinder garden fees up to minimum wage for every child and furthermore non-taxable parts of tax base, which unlike tax relieves only lower the tax base, hence yield the real savings in amount of 15 % of applied amounts. Such non-taxable parts of tax base are: donations, interest on mortgage for housing needs, contributions for private pension insurance, contributions for private life insurance, membership fees of a member to a trade union and fees for exams and payments for tests certifying results of further education.