The end of the year, a time of financial statements and regularly also of legislative changes, is approaching. The employees of wage departments usually do not have an abundance of good humour or excessive energy during this time. They need to deal with a lot of extra work. There are a number of duties and for the wage department it is always a challenge to handle especially the annual tax accounting.

What is the aim of the annual tax accounting and why does the employer carry it out?

There are currently approximately four million employees in the Czech Republic. The duty to tax their income from employment with an income tax applies to all of them and all of them have a statutory right to applying their credits and advantages and to balance their tax advances paid in the course of the year. Everyone can do so by means of a tax declaration, which he submits himself to the financial administration. Some employees are even obliged to submit a tax declaration, but they only represent a small percentage. An even smaller percentage of employed people choose this option voluntarily. For the remaining large group of employees, their employer is obliged to account for their income tax upon their request. He thus represents the state administration here. But the law does not grant the employer any remuneration for this activity, so he carries it out solely at his own costs.

Let us recapitulate, how the annual accounting of the employees’ taxes takes place:

Employees

• Submit a request for annual accounting of the tax using the form entitled „Prohlášení poplatníka daně z příjmů fyzických osob ze závislé činnosti“, better known as the “pink form”. Every employee, who is asking his employer for the annual accounting of the tax, will fill in the respective section in the request and confirm the correctness of the stated data with his signature. Employees usually also request the application of tax deductions and advantages for the upcoming taxable period (now for the year 2017), also stated in the same form. Although the finance ministry wrote at the website of the tax portal that an electronic version of the form would be issued, it is not yet available. The process thus still includes physical circulation of the “pink forms”.
• Within the annual accounting of the tax, the employee can apply tax credit, which could not be reflected in the monthly calculation of the advance tax. Entitlement to tax credit usually needs to be substantiated by a respective document – a confirmation, a statutory declaration etc.
• The employee must ask the employer by February 15, 2017, at the latest. If he fails to meet this deadline, he need no lose his tax credits, but it is up to him to submit his own personal income tax declaration.

The wage department, HR clerk

• Usually provides consulting for employees from the very beginning – helps them find out, if they are even able to request annual tax accounting or they have a duty to submit their tax declaration.
• Examines the requests received and communicated with employees, if the requests are not completely and correctly filled in or if some supplements are missing.
• Based on requests submitted in a timely manner and in full, it carries out a calculation of the tax, compares it to the advance payments made and if there is a difference – an overpayment higher than CZK 50, it accounts the difference to the employee usually together with his wages for February or March, but by March 31, 2017 at the latest. Doing so, it must show very good knowledge of the legal requirements for the application of the individual tax credits.
• Overpayments are paid to the employees by the employer from his resources, and he then settles this total sum with the state budget. The settlement may be carried out by inclusion into the advance payments for tax liability for the tax from employment for the current month or even subsequent months, too. If his tax liability for the current month is lower, though than the total of paid overpayments, he may request return of the difference from the tax authority.

As has been said, the annual accounting of the tax is carried out by the employer at his own costs. It is thus in his interest for the entire process to take place efficiently. We are very much aware of this. We understand that the annual tax accounting is a right of the employees, which is, however, also connected to the duty of passing on all required documents to the employer duly and on time, in their own interest. Efficient processing of the annual tax accounting is based on a good organisation of the entire process. We will be happy to help you manage the entire agenda cost-effectively and without stress.