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Tax overpayments: how do they arise and when am I entitled to a refund?

You are entitled to a refund of overpaid tax if you paid more tax in advance for last year than you ended up having to pay. Alongside this, we also sometimes see overpayments for health or pension insurance. Under what circumstances do overpayments arise, how do you claim them and when do you get the money?

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Creation of an overpayment of tax

After adding up all your income and expenses, taking into account the advances paid and claiming various allowances and deductions, your tax return will give you a result that can be either positive or negative. If you have paid a lot in advances, or perhaps claimed many different tax credits or deductions, the government will give you a refund.

Tip: The terms tax credit and tax deduction are often used interchangeably. However, the law makes important distinctions between them. A tax deduction reduces the tax base itself, from which the 15% income tax is then calculated. If we take as an example a tax deduction of CZK 10,000, by which the tax base is reduced, we save 15% on tax on CZK 1,000, i.e. CZK 1,500. In contrast, a tax rebate (for example, a taxpayer rebate) reduces the resulting tax already calculated. If we take the tax rebate of CZK 1,000 in our example, we will pay CZK 10,000 less on the resulting tax.

Refund of overpayment

The general time limit for the tax office to repay an overpayment is 30 days. Note, however, that the first day is not the day you filed your tax return, but the day that is the “deadline” for filing the return. whether the return was filed by the proper deadline on paper, electronically or with a tax preparer also plays a role.

What variations of overpayment refunds can we face?

  • If the tax return was filed in paper form by the April 2, 2024 deadline, then the 30-day period for refunding the overpayment begins on April 3. The overpayment will be refunded no later than May 2, 2024.
  • If filed electronically by the May 2, 2024 deadline, the overpayment will be refunded no later thanJune 2, 2023.
  • If a tax adviser is used, the deadline for filing the tax return is 3 July 2023. The overpayment will be refunded no later than 2 August 2023.
  • Employees whose employer prepares their annual tax return and who have incurred an overpayment as a result of claiming tax credits will usually be reimbursed in April as part of their March salary.

The reason why the 30-day period does not start until the day after the due date for submitting the tax return is to allow the taxpayer to make corrections to the tax return and file an amended return.

Tax overpayment and execution

Sometimes employers contact us with questions about their employees whose wages are affected by garnishment. They do not know how to proceed if they incur an overpayment resulting from the settlement of advances paid by their employer.

There are two legal approaches and they are diametrically opposed.

According to one view, the overpayment resulting from the annual settlement of advances paid by the employer is therefore considered to be part of the net wages and therefore subject to wage execution.

According to another view, the overpayment can be enforced solely by attachment of another monetary claim. Moreover, the assignment of the other monetary claim must be served on the employer in the period when the employee requested the annual tax settlement, but not later than the overpayment was paid in the March payroll. At no other time can the assignment of the claim be taken into account.

In our view, two situations must be distinguished:

  • If an employee in execution incurs anoverpayment oftax on the basis of the annual personal income tax settlement, that is, on thoseearnings(otherwise also net wages) which arepart of the execution deductions,theoverpayment should also become part of those deductions.
  • However, the tax bonus, which is not part of net wages, is a different situation. In such a case, an order should be made toseize another monetary claim.

Tip: Even a master carpenter makes mistakes sometimes. You file your tax return every year and have the whole process down pat, but you may still forget to declare extra income, or you may forget a tax-deductible item that helps reduce your tax. What can you do in this situation? How can I correct my tax return? We have answered this in our separate article.

Are you unsure about the tax and tax return legislation?

Contact us. A finance and tax specialist will answer all your questions within two working days.

Application for refund of overpayment

You must apply for a refund of the overpayment. This is done via the tax return itself, which contains the request on the last page. Only overpayments of more than 100 crowns are refunded, typically by bank transfer. However, sending a postal order is not excluded.

The request can be sent no later than six years after the end of the year in which the overpayment was incurred. It should always be sent to the tax office that records the overpayment, using one of the methods used to file the tax return (typically by data box).

Tip: another term that is used in connection with tax overpayments and underpayments is tax loss. This is a situation where tax expenditure is higher than tax revenue. In the case of individuals, itcan arise only for two partial tax bases – income from self-employment (business) and rental income.a tax loss cannot be achievedon theother sub-bases (i.e. typically on the employee’s employment income). We also consider a loss if the taxpayer has not earned any income but has nevertheless incurred expenses (for example, for the upkeep of an apartment that he did not rent). A tax loss can be included in one of the main deductible items of the personal and corporate income tax base. The tax loss incurredcannot be reduced by the sub-base of income tax on employment income. All other sub-bases may be reduced.

Tax overpayment and execution

Sometimes employers contact us with questions about their employees whose wages are affected by garnishment. They do not know how to proceed if they incur an overpayment resulting from the settlement of advances paid by their employer.

There are two legal approaches and they are diametrically opposed.

According to one view, the overpayment resulting from the annual settlement of advances paid by the employer is therefore considered to be part of the net wages and therefore subject to wage execution.

According to another view, the overpayment can be enforced solely by attachment of another monetary claim. Moreover, the assignment of the other monetary claim must be served on the employer in the period when the employee requested the annual tax settlement, but not later than the overpayment was paid in the March paycheck. At no other time can the assignment of the claim be taken into account.

In our view, two situations must be distinguished:

  • If an employee in execution incurs an overpayment of tax on the basis of the annual personal income tax settlement, that is, onthose earnings (otherwise also net wages) which are part of the execution deductions, the overpayment should also become part of those deductions.
  • However, the tax bonus, which is not part of net wages, is a different situation. In such a case, an order should be made to seize another monetary claim.

Tip: Tax filing time is approaching. Many of us may not even know that in some cases we may not have to pay taxes or may save a lot of money. As the old morbid wisdom goes, everything can be avoided except death and taxes. But in reality, it doesn’t have to hurt your wallet so drastically.

Overpayment of health and pension insurance

Advance tax payments are not the only payment that affects sole traders. They also pay health and pension insurance premiums. Overpayments can therefore arise here too.

If the total of the advance payments exceeds the health insurance premium calculated as 13.5% of the assessment base, this is an overpayment of insurance premiums. The overpayment shall be refunded by the insurance company if the payer has no other liability (i.e. debt) due to it, otherwise it shall be used to reimburse it. The insurance company shall only refund an overpayment whose total amount is at least CZK 200. no separate application for reimbursement of the overpayment of premiums is necessary. The filing of the statement itself shall be deemed to be a request for reimbursement of the overpayment if it shows an overpayment of premiums. The health insurershall be obliged to refund the overpayment of premiums within one monthof the date on which it became aware of the overpayment.

A similar principle applies to pension insurance. The overpayment of insurance premiums is also claimed as part of the submission of the statement. The Social Insurance Institution shall reimburse the overpayment within one month from the date of submission of the statement. However, it will not refund the money you have overpaid if you have a liability due to the authority. In that case, the overpayment would be used to pay the debt. They will also not refund you if the amount is less than CZK 100.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

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.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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