Progressive tax, millionaire’s tax, solidarity tax… Concepts that evoke a lot of emotions in the media and on social networks, but less clear information. You often ask if progressive income tax applies to you, how exactly progressive taxation works in the Czech Republic and how the Czech system compares to progressive taxation in Europe.
In this article, we will look at what exactly is a progressive tax and what is the difference between a flat tax and a progressive tax. We will also look at how the now abolished solidarity tax fits into the current system. We will also look at what progressive taxation looks like in Europe and where the Czech rates are in this comparison. Finally, we will summarise what to look out for in practice, whether you are an employee, self-employed or a landlord.
Progressive tax means that the higher your income, the higher the rate at which part of it is taxed.
It’s important to understand one thing that people often panic about unnecessarily: the higher rate is never retrospectively applied to all of your income, but only to the part that exceeds a set limit. So if you push your income over the higher rate threshold, you won’t lose any of your earnings just because you exceeded the limit – only the smaller slice of your income above the threshold is subject to the higher rate.
Hence the difference between the marginal and effective tax rates. The marginal tax rate is the one that applies to the last, or highest, part of your income. For example, if you are in the 23% bracket, the marginal rate is 23% because only the ‘top’ part above the threshold is taxed at this rate. In contrast, the effective tax rate is an average – it represents what percentage of your total annual income you actually pay in tax. Therefore, the effective rate may be as low as 16-18%, even if part of your income falls into the 23% band.
So when you hear that the progressive tax rate is 23%, it certainly doesn’t mean that a higher earner is paying 23% of their entire income.
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
The Czech debate often compares flat and progressive tax. A brief excursion into history is therefore in order:
Since 2008, the Czech Republic has introduced a so-called flat tax of 15% of wages. But there was a catch: the tax was not calculated on gross wages, but on the so-called super gross wage – i.e. gross wages plus the employer’s compulsory social and health insurance contributions.
The result? On paper, the flat rate was 15%, but in reality the effective tax rate for employees was around 20-21%. The system was complex, poorly understood and has long been criticised.
From 2013, the state introduced a so-called solidarity tax increase for the highest earners, popularly known as the “solidarity tax”. It was a 7% surcharge on top of the then applicable 15% income tax rate. This surcharge was not applied to the entire income, but only to the part of it that exceeded 48 times the average wage. The solidarity tax applied only to income from employment and business, not to passive income such as rental income or some capital income. In 2020, the threshold for triggering the solidarity tax was around CZK 1,672,080 per year, so it really only applied to the highest earnings.
It was at this time that the so-called “millionaire’s tax” was mentioned. In reality, however, it was not a separate new tax, but only a solidarity tax on income above a certain limit. The solidarity tax was also reflected in the tax return – if the taxpayer exceeded the limit, he or she separately reported the so-called solidarity tax liability in the return and made a separate calculation of the solidarity tax on the part of the income above the limit.
As of 1 January 2021, a major reform of personal income taxation has taken place. First, the super gross wage, a method of calculating payroll tax based on gross wages plus employer contributions, was abolished. At the same time, the solidarity tax was abolished, i.e. the solidarity tax increase for the highest earners. Instead, the legislator introduced two tax brackets – 15% and 23% – based on the amount of the tax base.
This formally ended the era of the so-called flat tax and the Czech Republic returned to progressive taxation. The progressive income tax is now applied through two rates: the lower rate of 15% applies up to a certain threshold of the tax base and the higher rate of 23% applies only to the part of the base that exceeds this threshold. For higher-income taxpayers, the 23% bracket thus represents a new form of the former solidarity surcharge.
Let’s get to what you’re most interested in: what exactly progressive taxation looks like in the Czech Republic in 2025 and when you’ll pay progressive tax.
For 2025, the personal income tax has two rates. The basic tax rate is 15% and the higher progressive tax rate is 23%. The lower 15% rate applies to income (more precisely, to the total tax base) up to a set limit, while the higher 23% rate applies only to the part of the tax base that exceeds the limit.
The threshold for entering the 23% rate is set at 36 times the average wage. For 2025, the average wage has been set at CZK 46,557, so the annual limit for applying the 23% rate is CZK 1,676,052. For employees, this corresponds to an indicative monthly threshold for progressive taxation of CZK 139,671 gross wages, which is three times the average wage for monthly taxation purposes.
The taxable base, i.e. the taxable base less the non-taxable parts of the taxable base and deductible items (typically gifts, interest on a home loan, pension/life insurance, etc., if they meet the conditions), is decisive for the division into 15% and 23%.
Find out what tax credits and deductible items we have.
In practice, this means that if your total tax base for 2025 does not exceed CZK 1,676,052, you will be taxed on this entire base at a flat rate of 15%. Once the sum of your tax bases exceeds this threshold, the tax will be split in two:
This division is the essence of progressive taxation – the higher rate always applies only to the “top tier” of income, not to the entire earnings.
Many people still worry that once their income exceeds the higher rate limit, it will pay them not to earn more. In fact, this is a myth. The higher 23% rate only ever applies to the part of the tax base that exceeds the £1,676,052 limit, while income up to the limit is still only taxed at 15%.
Even in the case of very high incomes, there is no longer any separate solidarity tax – so no additional 7% surcharge on income tax is payable for 2025. What some still look for under the name “solidarity tax” is in fact just the higher 23% income tax rate, which applies only to the part of the tax base that exceeds the threshold of CZK 1,676,052 in 2025.
Let’s look at how the progressive tax works using concrete examples. We will round the numbers slightly to show how the principle works. Of course, the real calculation is based on the exact amounts, the statutory rounding method and takes into account all the allowances and deductible items according to your specific situation.
Let’s imagine an employee who has a gross salary of CZK 60,000 per month and no other taxable income. His annual tax base (if we ignore special situations) is approximately CZK 60 000 × 12, i.e. CZK 720 000. This amount is well below the limit of CZK 1 676 052 for the higher tax rate, so that the entire tax base is taxed only at 15%.
The tax before the application of discounts is therefore approximately CZK 108 000. A basic taxpayer discount of CZK 30 840 per year is then applied. The resulting annual tax is therefore considerably less than CZK 108,000 and, when converted to individual months, corresponds to the amounts you see on your payslip.
Now consider a self-employed person who has an annual tax base of CZK 2,000,000 after deducting expenses (whether actual or flat-rate). In this case, both tax rates apply. The part of the tax base up to CZK 1,676,052 is subject to a 15% tax rate, while the rest, i.e. CZK 2,000,000 – 1,676,052 = CZK 323,948, is taxed at a rate of 23%. Here too, the basic taxpayer discount of CZK 30 840 is applied, so that the final tax liability is reduced to approximately CZK 295 000.
This example shows clearly how the effective tax rate works. Even if part of the income falls into the 23% bracket, the taxpayer does not pay 23% of the entire 2 million taxable amount. If we calculate the tax rate on the entire base (295 000 / 2 000 000), the effective rate comes out to approximately 14.7%. Thus, the progressive tax actually burdens more heavily only the part of income above the threshold, while the larger part of income, even for very high earners, is still taxed at the lower rate of 15%.
Yes. The tax rate is applied to the tax base, but only then come the tax credits (typically the taxpayer rebate). For some people, the rebate can significantly reduce the resulting tax liability regardless of the fact that the top tier falls within the 23% rate.
Yes, but only by legal means (tax-free parts and deductible items if you meet the conditions). These are typically gifts, home loan interest, pension products, etc.
Yes – for example, if a lump sum income has been reflected in the 23% advance, but the annual tax base turns out not to exceed the 23% rate threshold, or the annual allowances/deductions reduce the resulting tax, resulting in an overpayment.
The answer seems obvious at first glance: we have a progressive tax, so those who earn more must logically pay a higher share to the state. But it is not that simple. It is not just income tax alone, but a combination of tax and social security and health insurance contributions that together create the total income burden. It is in this combination that the phenomenon called degression – the opposite of progression – occurs.
On paper, we do have progressive taxation: part of the tax base is taxed at 15% and income above a certain threshold is then subject to a higher rate of 23%. So for income tax itself, not only do the richer pay more in crowns, but they also pay a higher percentage on the “top” part of their income. But tax is not the only compulsory payment. Social insurance, which (unlike tax) has a ceiling, plays a big role. This means that from a certain amount of income onwards, no more social insurance is paid on the “top”.
Specifically: for social insurance there is a so-called maximum assessment base, popularly called a ceiling. Once the sum of your relevant earnings exceeds 48 times the average wage, you no longer pay social security at all on the amount above this threshold. By contrast, the threshold from which the higher 23% income tax rate applies is set lower down, at 36 times average earnings.
It is this difference between 36 times (the threshold for the 23% tax) and 48 times (the ceiling for social insurance) that causes taxpayers with very high, but not yet extreme, incomes to be burdened more in aggregate than the very richest.
Imagine two people: the first has an annual income of just over 36 times the average wage, so part of her tax base falls within the 23% tax while still paying social security on her entire wage. The second person has an income well above 48 times the average wage. She too, of course, is subject to the 23% income tax rate, but no longer pays social security at all on the top end of her income. As a result, the average (effective) rate of taxation and contributions may be only slightly higher or even slightly lower for the second, richer person than for the first.
So, when you read in the media that the very richest in our country don’t pay that much more than people with only significantly above average wages, it’s not that they don’t pay high taxes, it’s that tax progression hits the limits of insurance premiums.
The debate about taxes very often slides into simple sentences like “In Europe, the rich have much higher taxes than here” or, conversely, “Everywhere taxes are being cut, only here they are being cut and taxed.” But the reality is much more varied. Individual countries differ not only in the level of the highest personal income tax rate, but also in the level of income at which this rate applies, what discounts and deductions exist and, above all, how high social security and health contributions are.
If we look purely at the highest nominal personal income tax rates in European countries, we find that the average ceiling in OECD countries in Europe is around 40-45%. Some countries have rates well above this average and have long been among the most tax-intensive for top incomes.
Typical examples are Denmark, where a combination of state and local tax can get to somewhere around 55%, France, which also has a top tax rate above 50%, and Austria, where the top rate for very high incomes is similarly in the above 50% band.
These countries rely on the idea that really high incomes should contribute above average to public budgets. At the same time, however, they often offer an extensive and high-quality system of public services – from education to health to social security.
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
At the other end of the spectrum, we find countries that have opted for a policy of low and often flat tax rates. Typical examples are Bulgaria and Romania, where a flat tax of around 10% has been in place for a long time. They are joined by other countries that use a uniform (flat) income tax rate, usually in the range of around 12-20%.
These countries are striving to be tax attractive within the European Union and the wider region – both for individuals and companies. Low rates are intended to encourage investment, entrepreneurship and attract highly skilled workers, but at the same time it often means less scope for a generous welfare state, unless this is offset by other tax structures (e.g. higher VAT or property taxes).
Now to the Czech system. The Czech Republic has two personal income tax rates – 15% and 23%. When we compare this top rate of 23% with other European countries, several important conclusions emerge. The 23% rate is one of the lowest ever “ceilings” among European OECD countries, while many Western European countries operate with top rates in the range of 40-50% or more. On the other hand, there are also countries with similarly low or even lower rates, but often with a single flat, non-progressive rate applied to all income without tax brackets.
In other words, if we look purely at the top income tax rate itself, the Czech Republic appears to be a relatively moderate tax state, especially compared to Western and Northern Europe.
From a practical point of view, however, we must not forget one crucial point: the nominal income tax rate alone does not tell us how high the overall burden on our income is. Other items also have a significant impact on the result – in particular the social security and health insurance paid by the employee, the levies paid by the employer on behalf of the employee, the various statutory ceilings and limits (for example, the maximum assessment base for social security) and the system of discounts and deductions that can significantly reduce the tax actually paid.
In some countries, therefore, the top tax rate may be very high on paper, but at the same time there are lower insurance contributions or more generous rebates and deductions, so that the final burden on income is not as dramatic as the rate itself would suggest. Conversely, elsewhere (and this is to some extent the Czech case) the top rate may be low on paper, for example the 23% mentioned above, but it is the compulsory social and health insurance contributions that add significantly to the overall burden.
Therefore, although the Czech Republic has a progressive taxation with a relatively low top rate, once compulsory contributions are added to this tax, the overall burden on income is not nearly as low as it might seem at first sight in an international comparison.
The progressive income tax does not only apply to the classic employee’s salary. The tax base is the sum of several sub-bases under the Income Tax Act – this includes income from employment, business income, rental income and some capital income. So if you have more than one type of income, they are basically all added together to form one total base, which is then subject to either only the 15% rate or a combination of 15% and 23%.
For employees, tax is usually dealt with on a monthly basis. The tax is deducted as an advance directly from wages and the employer takes care of the calculation. The latter normally applies a 15% rate on income up to a monthly limit, and once gross pay exceeds this limit, the higher 23% rate starts to apply on the amount above the limit during the year.
A final settlement will then take place at the end of the year – either through an annual tax settlement by the employer or through a tax return if you have a more complex situation (e.g. multiple employers, side income, etc.). In practice, this means that most ordinary employees will only encounter the progressive rate if they have a really high salary or other income.
The situation is different for the self-employed. The tax base for the self-employed is the difference between income and expenses – either actual (as recorded in the books or tax records) or expenses claimed at a flat rate. The tax is then calculated on this basis: the part up to the limit is taxed at 15% and the part above the limit is taxed at 23%.
Thus, the impact of the progression will be felt most by the self-employed when they have high profits, typically when they have a successful business or a significant increase in sales. The choice of the method of claiming expenses also plays a crucial role – the tax base is often higher for flat-rate expenses than for entrepreneurs who prove actual costs. With the progressive tax rate comes the obligation to pay higher social security and health insurance, which is reflected in the reports to the relevant insurance companies.
Income from the rental and sale of real estate is a specific area. Rental income forms a separate sub-base under the Income Tax Act , but is added back to other income at the end. So, if you have a high salary, for example, plus significant income from renting out a flat or commercial premises, it is this sum that can push your total tax base above the threshold at which the 23% rate applies.
For property sales, in many cases the income from the sale is exempt from tax – typically if you have lived in the property for a certain period of time or owned it for a statutory minimum period. However, if you don’t meet the conditions for exemption, the sale proceeds also become part of the tax base. Thus, a higher sale price can add a significant amount to your total annual basis and may cause you to be subject to the progressive 23% rate.
When do you pay income tax on the sale of the property? You can find the answer in the next article.
A progressive income tax means that the higher rate will never apply to all of your income, but only to the part of your taxable income above the threshold. In the Czech Republic in 2025, there are two bands: 15% up to a threshold of CZK 1,676,052 of the tax base (36 times the average wage) and 23% only on the upper part above this threshold. It is therefore important to distinguish between the marginal rate (e.g. 23% on the last part of income) and the effective rate (average of the whole income), which is usually significantly lower. At the same time, the former solidarity tax (7% surcharge above 48 times the average wage) has already been abolished.
In practice, the progression can apply not only to high wage earners but also to self-employed workers and people with a combination of incomes (e.g. wages + rent), as the partial bases are added together to form one overall tax base. At the same time, however, income tax alone is not indicative of the total burden: social and health contributions enter significantly into it, and there is a ceiling for social insurance (48 times the average wage). This can lead to “degressivity” in the aggregate – a situation where very high incomes are no longer partly subject to social insurance, and the average burden may then not increase as fast as the tax progression itself would suggest. Compared to Europe, the Czech Republic then comes out as relatively moderate with a top rate of 23%, but the overall picture always needs to be assessed across levies, discounts and deductions.
No. There is no cap (maximum assessment base) in public health insurance – it has been abolished and does not apply today.
Because many states have local taxes, contributions, special surcharges and completely different insurance systems. Therefore, it is the overall burden on labour (tax wedge) that is seriously compared, rather than the top rate itself.
An annual return is usually sufficient if you have income from employment from one (or more than one) employer and are not required to file a return. The application must then be filed no later than 15 February. Conversely, you typically have to file a return if you have concurrent employment with multiple payers (advance tax) or if you have significant other income (e.g. business/rent/other income above the limit).
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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