Summer months often provide students with an opportunity to earn extra money through temporary work. However, starting next year, students will need to be aware that the taxation conditions for such work will become more unfavorable.

Currently, if the gross monthly remuneration from a work agreement is 10,000 CZK or less, or from an agreement on work activity is 3,999 CZK or less, no social or health insurance contributions are deducted from the remuneration.

The low taxation of gross remuneration up to these limits is a key factor that makes employment agreements attractive for students. Gabriela Ivanco, a tax advisor at Mazars, explains that students working for multiple employers do not pay insurance contributions if the gross remuneration from each employer falls within the limit. This is because, in 2023, the limit is calculated separately for each employer.

Working students are entitled to essential monthly tax credits, including the taxpayer credit of CZK 2,570 and the student credit of CZK 335. However, when working for multiple employers simultaneously, tax credits can only be applied to one of them.

Legislative changes currently being prepared aim to abolish the tax credit for students starting from January 2024. However, for this year’s summer jobs, students can still apply for this credit.

Students who earn money through temporary work only during part of the year, particularly the summer months, and have withholding tax deducted from their earnings, will be eligible for a tax refund for the year 2023. During the summer, they will have paid more in withholding or deduction tax than their annual tax obligation. In their tax return, they can claim the full annual scope of the taxpayer credit and the student credit, even though they were employed for only part of the year.

To complete their tax return, students will need confirmation of taxable income from all employers, including those for whom they worked based on employment agreements, warns Ivanco.

Work agreements are a common form of employment among students. Some students work for multiple employers simultaneously with a gross monthly remuneration of CZK 10,000 and are exempt from paying social and health insurance contributions. However, if the proposed legislative changes are passed, insurance contributions will be deducted from all agreements if the gross monthly remunerations exceed 40 percent of the average wage.

As a result, it will no longer be possible to work for two different employers with a gross remuneration of CZK 10,000 without paying insurance. “The tax conditions for working students will worsen not only due to the abolition of the tax credit for students but also due to new limits for the creation of insurance participation in cumulative work agreements,” concludes Ivanco.

Article by Prague Forum