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A higher provision for “pension and life” is better than an increase in gross wages

Supplemental pension insurance, new supplemental pension savings, and life insurance can reduce the tax base for a certain amount of deposits. Thus, the deposits of the taxpayer himself make tax savings if the legal conditions are met.

In the case of pension savings, the saver can earn the maximum with his own deposit of 3,000 CZK per month. Annual savings on income tax in such a case is 3600 kroner.

Retirement savings: state contribution and tax deduction.
Monthly payment in CZK 100 300 500 800 1000 1500 2000 3000
Monthly state contribution to Czech Koruna 90 130 190 230 230 230 230
Annual tax savings in CZK 900 1800 3600
Total annual interest in CZK 1080 1560 2280 2760 3660 4560 6360

Tax benefits for retirement savings and life insurance can also be drawn from employer contributions. This is in the form of exemptions from social and health insurance contributions and income taxes. At the same time, the legislation does not specify how many crowns the employee will contribute to the contract. However, the tax benefit applies to a total annual contribution of up to 50,000 CZK.

“Employer’s total annual contributions up to the maximum are not subject to income tax or social and health insurance contributions. Both employer and employee, explains Gabriella Ivanco, tax advisor at Mazars.” This benefit can also be used by self-employed business owners.

You can contribute more products

Employers can contribute employees to both a life insurance contract and retirement savings at the same time. In such a case, the total annual contribution of the employer to financial products supported by the state is evaluated from the point of view of tax exemption.

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At the same time, the employer can contribute to the employee’s financial contracts from the beginning of the employment relationship; There is no waiting period in the form of the required number of years of work. However, some employers have set stricter requirements. The benefit is provided in the form of a “pension” or life insurance contribution to employees who have worked for them for a longer period, say five years or more.

Gabriela Ivanco adds: “Employees who work on an employment agreement are also entitled to tax benefits payable in exchange for the employer’s contribution.”

Tax savings from the employer

The employer’s wage costs consist of the total wage agreed upon with the employee plus the compulsory insurance premiums that employers must pay the employee.

net pay calculator for 2022

Employers pay 9% for employee health insurance and 24.8% for social insurance for a total of 33.8%. In practice, this means that an increase in total wages, for example, CZK 1,000 represents an increase in wage costs of CZK 1,338 per month.

“Maximizing the contract contribution for employees by 50,000 kroner instead of increasing the gross salary by the same amount means a financial saving of 16,900 kroner for the employer,” the tax advisor calculates.

Tax savings on the part of the employee

Of the total salary, employees pay 4.5% for health insurance, 6.5% for social insurance, and 15% for income tax. Tax deductions are applied when calculating income tax. If the gross salary is increased by, say, 1,000 CZK, then the employee’s net salary will increase by only 740 CZK, provided that the taxpayer’s deduction is exhausted.

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However, any employer’s contribution to the maximum supplemental pension or life insurance contract is not subject to any taxes. Therefore, it is better for an employee who might use a higher gross salary to save for retirement to have the deposit paid against the contract by the employer instead. But in practice, lower-income employees tend to demand higher total wages because they need to increase their current financial position immediately.

Gabriela Ivanco explains: “Employees who work for more than one employer can withdraw tax-deductible contract contributions from all employers at the same time, and the cap is assessed for each employer individually.”