Written by: Halka Jaklová
Photo by: René Jakl
If you have a husband or children, the new amendment to the law on income tax, which substantially changed the system of tax advantages of families, most probably relates to you.
Tax allowances are a basic form of indirect state financial support for families. A marked change in this area came into force on 1 January 2005 through an amendment to Law No. 669/2004, the income tax law. Above all, the amendment introduces a new form of tax relief for raising children instead of the former deductible, untaxed items for children. While the old law involved deductions from the tax base (i.e., from income reduced by expenditures), the new law involves discounts already calculated tax. This discount can be applied in the amount of CZK 6,000 per year per child living in a common household, and up to CZK 12,000 for a handicapped child. If you do not use the full discount, e.g., with more children and a low tax base, under certain conditions you can receive a cash payment, called a tax bonus, for the part you did not use.
Bonuses can be received by both employees and entrepreneurs, provided yearly earnings amount to at least six times the minimum wage. In any event, the maximum possible tax bonus is CZK 30,000. In practice, if you are in business you deduct the discount or apply the bonus when filing your tax return. For an employee, the tax obligation withheld by the employer is lowered each month by CZK 500 for each child. This tax advantage can be used only once per taxation period for one child in one household. Another significant change under the amended law is the introduction of joint taxation of married couples. This makes it possible to calculate the tax on the joint base of both spouses.
The tax bases are added together and after the untaxable sums are deducted the total base is divided by two. Each is then taxed one-half. Joint taxation also applies in the event that one spouse has no income. This is contingent upon one child living with the couple in a single household. Each of the spouses states joint taxation in his or her tax return. The new system is advantageous especially for families with children in which the spouses have markedly different incomes, as the tax rate is lowered for the spouse who earns more.