How Will Average and Minimum Wages Affect Employee and Self-Employed Taxation in 2025?

The average and minimum wages in the Czech Republic for the coming year have already been announced. Several key parameters will be derived from these figures, which will impact various aspects of taxation in 2025. Specifically, changes will occur in the calculation of tax advances, social and health insurance contributions, the income threshold for tax bonuses, and pension calculations.

Contact the 360WEDO team for expert consultation and assistance in accurately calculating salaries for your business. We stay up-to-date with all changes in Czech legislation, ensuring that you are always compliant. By outsourcing your accounting to us, you can focus on growing your business while we take full responsibility for all calculations.

Average Salary in the Czech Republic for 2025

According to Government Decree No. 282/2024, effective January 1, 2025, the average salary data will also establish the reduction thresholds for calculating pensions in 2025. This information is essential for determining both the minimum and maximum tax bases and insurance contribution advances for self-employed individuals in the upcoming calendar year.

The general tax base for 2025 is calculated based on statistical data from 2023, while the conversion factor is derived from statistics for the first half of 2024. This conversion factor reflects the increase in average salary during that period. The expected average salary for 2025 is obtained by multiplying the established general tax base from 2023 by the growth factor for the first half of 2024. This figure is used to determine pensions and tax advances for the year.

The average salary influences two key values: the annual limit on tax exemptions for employee benefits and the application of a progressive sliding tax rate.

Employee Benefits in 2025

Starting in 2024, under § 6, paragraph 9 of the Income Tax Act, employees will be exempt from taxation on income up to half of the average salary for the tax period. For 2025, the average salary is projected to be CZK 46,557, making the tax-exempt portion CZK 23,278. This exemption applies to non-cash benefits provided by employers to employees or their family members from cultural and social funds, social funds, or post-tax profits.

 These benefits include:

• Purchasing goods or services related to medical, therapeutic, hygienic, and similar needs at medical facilities.
• Acquiring medical devices prescribed by a doctor and using educational or recreational facilities.
• Providing vacations or excursions.
• Utilizing childcare facilities for preschool-aged children, including kindergartens as per the Education Act.
• Accessing employer libraries and sports facilities.
• Participating in cultural or sporting events.
• Receiving discounts on printed books, including children’s picture books, provided that advertising does not occupy more than 50% of the book’s surface.

Currently, there is a proposal to amend this provision (an amendment to the Employment Act) that could change the limits on employee benefit exemptions for the upcoming year. Specifically, for health-related benefits, it is suggested that the exemption be capped at the average salary. For other benefits, however, the upper limit will remain at half of the average salary.

Progressive Sliding Tax Rate for 2025

Since 2021, the Czech Republic has implemented a sliding progressive tax rate that consists of two tiers: 15% and 23%. The tax rate for the monthly tax advance is structured as follows:

a) 15% for the portion of the tax base up to three times the average salary

b) 23% for the portion of the tax base exceeding three times the average salary

The tax advance is calculated based on the tax base, which is rounded to the nearest hundred Czech crowns. This calculation involves summing the products of each relevant portion of the tax base and its corresponding tax rate.

For 2025, the 15% tax rate will apply to income up to CZK 139,671 (which is three times CZK 46,557), while income exceeding this amount will be taxed at 23%. When calculating annual taxes for 2025, the 15% rate applies to income up to CZK 1,676,052 (36 times CZK 46,557), and any income above this threshold will be taxed at 23%.

Calculation Procedure for 2025 Taxes

To calculate taxes for 2025, the employer first subtracts any non-taxable portions of the tax base (such as non-cash benefits, interest, pension savings, and insurance) from the gross salary. The resulting tax base is then rounded to the nearest hundred CZK.

This structured approach ensures clarity in understanding how taxes are calculated under the progressive sliding tax rate system for the upcoming year.

Minimum Wage in 2025

The Ministry of Labour and Social Affairs has announced the minimum wage for 2025. With a standard 40-hour workweek, the minimum monthly wage will be CZK 20,800, which translates to a minimum hourly wage of CZK 124.40. From the perspective of the Income Tax Act, this minimum wage will impact tax reliefs and the exemption thresholds for pensions.

Tax Relief for Dependent Children in a Joint Household

One important factor that will influence average wages in terms of taxation is the tax relief available for dependent children. This relief can be claimed as a tax rebate, a tax bonus, or a combination of both. 

A taxpayer can receive a tax bonus—a benefit provided by the state—if their income during the tax period meets certain criteria: specifically, it must be at least six times the minimum wage. This income can come from employment, business activities, or self-employment and does not include non-taxable income or income subject to withholding at a special tax rate.

Since 2018, income from capital gains, rental properties, and other sources (as outlined in § 8–10 of the Income Tax Act) has not been included in this calculation. There is no maximum limit on the tax bonus; however, there is a minimum amount of CZK 100.

To qualify for a monthly tax bonus from an employer, an employee’s income must be at least half of the current minimum wage, with the monthly bonus set at a minimum of CZK 50. If an employee’s annual income falls short of six times the minimum wage, they will not have to repay any monthly tax bonuses already received throughout the year during their annual tax settlement with the employer. These conditions are detailed in Section 35d of the Income Tax Act.

For 2025, to qualify for the child tax bonus—based on six times the minimum wage—the income threshold will be CZK 124,800. This means that to receive a monthly tax bonus from an employer, an employee must earn at least half of the minimum wage, which amounts to CZK 10,400 per month.

Exemption from Tax on Regularly Paid Pensions

The exemption limit for regularly paid pensions will be increased to CZK 748,800 annually, which corresponds to 36 times the minimum wage. This exemption applies only to supplementary pensions, meaning the monthly pension must exceed CZK 62,400.

According to § 4, paragraph 1, letter h) of the Income Tax Act, if income is received in the form of a regularly paid pension or annuity, the total amount of that income is exempt from tax up to a maximum of 36 times the minimum wage in effect on January 1 of the relevant calendar year. However, this exemption does not include any additional supplements or pension contributions governed by other legal regulations.

https://www.podnikatel.cz/clanky/ovlivni-prumerna-a-minimalni-mzda-zdaneni-zamestnancu-a-osvc-2025