The pension reform will also affect self-employed workers who have opted for the flat tax. The flat tax should increase for each income bracket.
Reform and Flat Tax – First Bracket
In 2023, there will be a lump-sum tax of 6,208 CZK per month for the first bracket. Self-employed workers will pay this tax in a single installment. The amount mentioned above includes 100 CZK for taxes, 3,386 CZK for social insurance, and 2,722 CZK for health insurance. The reform aims to increase social insurance. For the first bracket, the social insurance calculation is based on 25% of the average annual salary, from which the social insurance amount is extracted, equal to 29.2% of this sum. Finally, the extracted value is increased by 15%.
The calculation methods will differ in the years following the reform, as explained below.
An example of the previously mentioned social insurance calculation in 2023.
According to the Ministry of Labor and Social Affairs, the average salary should reach CZK 40,324. From this average salary, 25% will be calculated, which amounts to CZK 10,081. Social insurance, which is 29.2% of this value, amounts to CZK 2,944. This would be the minimum premium that self-employed workers should pay if their main business activity is commercial. However, if the self-employed worker chooses the flat tax regime, this amount will be increased by the aforementioned 15%, resulting in a total of 3,386 CZK.
The goal of the reform is to increase the taxable base for social insurance by 5% each year until it reaches 40% of the average annual salary.
Considering the average salary of 2023, let’s illustrate the described evolution through examples.
For the first year after the reform, the calculation will be as follows: assuming the average salary is 40,324 CZK, the base for calculation will no longer be 25%, but 30%. The new taxable base will be CZK 12,098, from which 29.2% will be calculated (3,533 CZK). This amount will be increased by 15%, resulting in an annual total of 8,124 CZK, an increase of 677 CZK per month compared to the previous year. In the second year after the reform, keeping the average annual salary fixed, the base will increase by another 5% and will be 35%, reaching a value of 14,114 CZK. From this, the 29.2% (4,122 CZK) will be calculated and subsequently increased by 15% to reach 4,740 CZK, contributing to the overall increase in the flat tax amount. In this case, there will be an increase of 1,354 CZK per month, and the total insurance payment will be 16,248 CZK. In the third year after the reform, the taxable base will reach 40%, which is 16,130 CZK. Following the same calculation process as in the previous years, the amount will be 5,417 CZK. This is an increase of 2,031 CZK per month compared to the calculated value in the first year, amounting to 24,372 CZK per year. The increase will be relatively higher due to the expected salary increases in the coming years. As a result, the payment for health insurance, which depends on the average salary, will also increase, with the calculation remaining unchanged: 13.5% of 50% of the average salary. The tax is set at 100 CZK for the first bracket.
Pension Reform and Flat Tax – Second Bracket
In the second bracket, social insurance is calculated as 29.2% of 50% of the average income in this bracket, which is 51,000 CZK. As 50% is 25,500 CZK, 29.2% of this amount is 7,446 CZK. This figure represents the social insurance amount within the second lump-sum tax bracket, which is included in the total value of 16,000 CZK that self-employed workers in this group will pay in a single installment. After the reform, the taxable base will increase by 5%, moving from 50% to 55%. Therefore, starting from this year’s data, the evaluation base is 28,050 CZK, and social insurance will amount to 8,191 CZK. The increase of 745 CZK per month and the annual payment increased by 8,940 CZK will affect the self-employed workers.
Pension Reform and Flat Tax – Third Bracket
Within the third bracket, 78,000 CZK is the amount used to determine the evaluation base. 50% of this amount corresponds to 39,000 CZK, and social insurance (29.2%) is, therefore, 11,388 CZK for the year 2023. If, following the reform, the taxable base moves from 50% to 55%, we consider a starting amount of 42,900 CZK, and social insurance will be 12,527 CZK. The monthly increase will be 1,139 CZK, and the annual increase will be 13,668 CZK.
Sources: https://www.kurzy.cz/
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