Tax relief for working pensioners

Czech Republic: Working pensioners in the end won’t miss out on the tax break of which they were temporarily deprived due to the government’s austerity package of 2012

One of the goals of the above-mentioned amendment to the Income Tax Act is to put an end to the inequality among taxpayers which was in conflict with the constitutionally guaranteed fundamental rights and freedoms, according to a 2014 decision of the Constitutional Court. It achieves this by abolishing a provision in the Income Tax Act which denied the personal tax break to employees and individuals with income from other gainful occupation, or in the form of rent or capital gains, or other taxable income, if those persons drew at the same time old-age pension. As a practical outcome of this change to the law, taxpayers who were unable to claim the personal tax break in 2014 and 2013 because of parallel taxable earnings and old-age pension payments have now the opportunity to reclaim this tax relief from their employer, or (if they file their own tax return) from the locally competent finance office.

Those employees who signed the „taxpayer’s affidavit regarding income from dependent work and emoluments“ before their employer in 2013 (to pass the burden of tax reporting to their employer) and who asked for (but did not receive) the individual tax break, will be retroactively awarded the tax break by their employer. The employer must do so no later than by 1 April 2017; subsequently, the employer shall perform a corresponding downward adjustment of the pay-as-you-earn income tax deductions that are withheld from the employee’s wage, salary, or emoluments. Those employees who neither signed the taxpayer’s affidavit nor filed their own tax return for 2013 may submit a „late filing“ (within the same time period of three years) in which they claim the tax break. Finally, those who have already filed their income tax return for 2013 but neglected to ask for the personal tax break may do so in a supplementary tax return, which is to be filed by the end of the month which follows the month in which the taxpayer has learned of the fact that their tax liability could have been lower thanks to their eligibility for tax relief.

The amendment to the Income Tax Act also reintroduces the taxation of old-age pensions for those retirees who earn more than CZK 840 000 on the side thanks to employment, business operations, or rental property.

The amendment is set to come into force on 1 January 2015.

Source: Act No. 267/2014 Coll. amending the Income Tax Act (Act No. 586/1992 Coll.), ruling No. 162/2014 Coll. by the Constitutional Court 

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