Annual tax settlement vs. tax return

Find out the difference between the annual tax settlement and the tax return. The annual tax settlement (Roční zúčtování daně) is the equivalent of a tax return (daňové přiznání). It is completed and processed by the employer on behalf of the employee.

The annual tax statement is a summary of paid wages, advance tax, social security and health insurance contributions of employees. The annual tax return is made by the employer once a year. However, it is not automatic; the employee must request an annual return from the employer by February 15.

When can an employee request an annual settlement?

An employee may request an annual settlement if:

• they have no other income, e.g. from a side business, rent, etc,
• does not have more than one employer at the same time,
• he/she is not obliged to file a tax return for another reason, e.g. interest on a mortgage.

Why is it a good idea to ask your employer for an annual tax settlement?

If an employee asks his employer for an annual return, he will not have to worry about filing a tax return. The employer will do the taxes for the employee, including tax deductions. The employee does not have to file a tax return.

How does this work?

• The employee asks the employer for the annual settlement by 15 February on the basis of a completed application.

• The employer will provide the employer with supporting documents to process the settlement if he/she claims tax deductions or a tax bonus for children.

• Signs the application for the annual settlement on page 2 in the signature section.

• The employer will carry out the annual settlement and submit it to the tax office.

• The employer delivers a tax and tax credit calculation form to the employee, which is called a confirmation of the annual settlement.

• The employer delivers a tax calculation and tax allowance calculation form to the employee, which is called a confirmation of the annual settlement.

• The employee may incur an overpayment (tax refund), which the employer will usually pay out in the March salary. The refund may arise for the following reasons:

  • the employee claims tax allowances or deductions which are claimed once a year,
  • the employee started working for the employer during the year and claims tax credits for the whole year,
  • the employee claims non-taxable items once a year,
  • the employee has not signed a taxpayer's declaration for the whole year.

• The employee signs a taxpayer declaration for the next tax year.

What tax deductions can the employee claim?

The employee can claim the following deductions on a monthly basis:

• taxpayer deductions - signs a taxpayer declaration with the employer,
• child tax bonus - provide the employer with the child's birth certificate or a certificate of education/school attendance,
• student deductions - if the employee is also a student, he/she provides a certificate of study,
• deduction for invalidity - provide the employer with a certificate from the Social Security Agency (ČSSZ),
• deduction for disability (ZTP) - provide a certificate of disability.

In addition to these deductions, which are reflected monthly in the salary, the employee can claim additional deductions once a year, namely:

• deduction for the placement of a child, the so-called nursery fee - the employer must provide a certificate from the pre-school (kindergarten) for the annual settlement,
• spouse deduction - a written affidavit from the spouse.

What are the non-taxable parts of the tax base?

Non-taxable items do not directly reduce income tax but rather reduce the tax base. In order to pay as little tax as possible, the employee can also claim these items, which will reduce the tax base:

• gifts and gratuitous benefits,
• interest paid on a mortgage or building society loan,
• pension insurance and additional savings,
• life insurance,
• union fees,
• educational reimbursements.

All non-taxable items must be supported by a certificate from the bank or relevant institution. These certificates must be presented to the employer again by February 15. If the institutions in question do not send him the certificates, the employee can ask for them himself.

What happens if the employee does not ask the employer for the annual settlement?

If the employee does not ask the employer for the annual settlement by February 15, the employer is obliged to issue the employee with a certificate of employment income. On the basis of this certificate, the employee will file his/her own tax return.

Not sure how to claim your tax credits? Try our applications for processing tax returns for 2022 at Neotax.eu, or try filing your tax return in the Czech Republic with one of our tax specialists.