Advance vs withholding tax in 2026: what’s the difference?

What is advance tax

An advance tax payment (advance tax) is an amount deducted on an ongoing basis by your payer (typically your employer) as an advance on your future annual tax liability. For employees, this is the standard employment tax scheme: your employer will calculate your advance income tax on the statutory taxable amount each month and pay it to the tax office.

The key for you is that the advance payments are cleared at the end of the year. Either your employer will make an annual settlement (if you meet the conditions) or you will sort it out yourself in your tax return. That’s where it will show whether the advances have been deducted just right, or if there’s an overpayment or underpayment.

When advance tax is used

You will most often see advance tax in traditional employment (both main and secondary), and generally in situations where your employer pays you a salary and you fit into the standard employment tax regime.

In practice, this means that your employer will calculate your advance income tax each month on the statutory basis (this is the total of your taxable income for that month, typically excluding income that is exempt or subject to withholding). The total is simply the sum. This is because your employer does not pay the tax office your advance for you as an individual, but pays one aggregate amount for all employees together for that month. In other words, it takes the advances it has deducted from each person’s wages and adds these individual amounts together.

The second typical advance tax trigger is a signed income taxpayer statement (pink slip) with that employer. The declaration does not in itself mean that advance tax is applied instead of withholding tax at all times and in all circumstances, but in practice it is usually the case that with the employer where you claim the declaration, your income generally goes in advance – and it is through the advances that your monthly rebates (typically the basic ratepayer rebate) are projected on an ongoing basis.

The third typical situation is with agreements(FTE and FTE): once the conditions for withholding tax are not met, the advance tax kicks in. In practice, you will encounter withholding tax if you do not sign a declaration and the remuneration fits within the statutory limit (CZK 4,500 for a DPP and CZK 12,000 for a FTE). However, if you exceed the limit or sign the declaration, the employer switches to the advance payment mode and starts withholding.

Fourth practical case: if you have more than one employer at the same time and you apply for one declaration, you will not apply for the others (because you cannot apply it in more than one place in one period). That in itself doesn’t say that there must always be withholding tax at the other employers – the conditions of the particular income (typically whether it’s a FTE in the limit, etc.) will decide. If the conditions for withholding are not met, advance tax kicks in again.

What is withholding tax

Withholding tax (more accurately “tax levied by withholding at a special rate”) is a scheme whereby the taxpayer withholds the tax directly at source and pays it. For many incomes, this can settle the taxation at the time of payment (without having to calculate anything in the annual return or tax return).

At the same time, it is important to add one practical point: you can voluntarily include some income subject to withholding tax in your tax return. This makes sense especially if you have low total income for the year or if you claim allowances and deductions (typically the basic taxpayer rebate or other allowances) so that your total tax comes out lower on your return than what you have already withheld. In this situation, the withholding tax on your return will be added to your annual tax liability and you may have an overpayment that the IRS will refund.

When withholding tax applies

In practice, withholding tax is most often encountered on smaller, incidental or specified income where the government does not want you to automatically have to deal with an annual return or tax return for it (although for some income it may make sense to include it voluntarily).

The most common “trigger” for withholding tax in employment and agreements is a combination of two conditions: you do not have a signed taxpayer declaration with the payer and you are within the limit the law sets for withholding. In the case of a TPA, the determining factor is whether the monthly income with the same employer falls below the qualifying amount for participation in the sickness insurance scheme. For 2026, this decisive amount is set at CZK 12,000 and withholding tax will apply up to CZK 11,999 for the DPP. In practice: if you earn up to the limit in a month on a DPP with one employer and at the same time you do not have a signed declaration there, your employer will typically withhold the tax.

The second typical case is so-called small-scale work (e.g. a DPP), again without a signed declaration. The decisive amount for 2026 is set at CZK 4,500 and the tax is therefore withheld up to CZK 4,499.

The third scenario occurs when you have a main employment relationship and a temporary employment relationship with the same employer at the same time. The key here is whether you have a signed declaration with the payer – if you sign a declaration with the payer, then the income from the DPP with the same employer is also taxed in advance together with the income from the employment relationship (and these incomes are added together for the calculation of the advance payment). On the other hand, if you do not have a signed declaration and you meet the conditions for withholding, withholding tax will be deducted from the FTC in the limit, while the advance tax will be deducted from the employment relationship. This is exactly why someone can have both schemes side by side on the payroll of the same employer.

And the fourth big group where you’ll see withholding tax outside of employment is certain capital and other statutorily enumerated income where the payer (typically a bank or profit-sharing company) withholds the tax automatically when it’s paid. These are, for example, certain interest or profit shares.

If you want to be sure whether you need to file a return or whether an annual return is enough, a short consultation with a solicitor will help – it will save you overpayments and underpayments.

Summary

The main difference between advance tax and withholding tax is whether it’s an ongoing payment up front or a tax that may be an outright final payment. Advance tax is the normal regime for payroll: your employer deducts it on an ongoing basis and everything is accounted for at the end of the year (either through your employer’s annual return or through your tax return). In practice, the advances are paid to the tax office in aggregate for all employees – so the total of the advances withheld, i.e. the sum of all the advances withheld in the period, is dealt with on the employer’s side.

Withholding tax, on the other hand, works in such a way that the tax is deducted by the payer directly at the time of payment and often the taxation is settled. Typically, it is applied to smaller incomes (e.g. agreements without a signed taxpayer declaration and where limits are met) or to selected capital income where the tax is automatically withheld by the bank or company. Importantly, some income taxed by withholding can be voluntarily included in your tax return – and if the discounts and lower overall income result in lower annual tax, you may incur an overpayment and the tax office will refund some of the tax withheld.