Possibility to claim a tax credit on spouse

At the beginning, we would like to inform you that this tax credit can be claimed only annually via annual tax reconciliation or tax return and thus, not monthly (as in the case of basic tax credit for taxpayer). If the spouse is entitled to a disabled person's card, the amount is doubled, i.e. CZK 49,680. As a spouse is considered husband/wife as well as partner under the act governing registered partnerships. The basic condition for claiming the tax credit is that the spouses live in a jointly managed household.

How do we prove eligibility for the tax credit?

The employee proves to the employer that he is entitled to the tax credit by providing a (copy of) document proving the identity of the spouse and the existence of the marriage or partnership (proof of marriage or partnership), as well as a disabled person's card, if the spouse holds one, or a decision on granting the card. At the same time, a declaration must be made by 15 February that the spouses live in a jointly managed household and that the other spouse's own income does not exceed the annual limit of CZK 68 000. If you are submitting a tax return, it must also be accompanied by an affidavit (including the spouse´s identification data).

What is included in the spouse´s income?

Instruction No. D-22 of the General Financial Directorate defines the spouse's own income as follows:

"The spouse's own income is represented by the sum of all own incomes earned in the tax period, not reduced by tax expenses (gross income), including income subject to withholding tax or tax-exempt income or income not subject to tax. However, income referred to in Section 3(4)(b) (loans or borrowings - note by Crowe) and income referred to in Section 35ba(1)(b) of the Income Tax Act shall not be taken into account."

Thus, beware of tax-exempt income and income not subject to tax and do not forget to include it in the limit, even though your spouse will not deal with it in their own personal income tax return.

The list of income from section 35ba(1)(b) of the ITA that is not included in the own income is set out below:

• state social assistance benefits,
• foster care benefits, except for the foster parent's remuneration,
• benefits for persons with disabilities,
• benefits of assistance in material distress,
• care allowance,
• social services,
• state contributions to supplementary pension schemes with state contribution,
• state contributions to supplementary pension savings,
• state contributions under the Act on Building Savings and on State Support for Building Savings,
• scholarships granted to students continuously preparing for a future profession, and
• income arising from the care of a relative or other person entitled to a care allowance under the Social Services Act, which is exempt from tax under Section 4 of the ITA.

State social assistance benefits referred to in the first point above covers the following:

• income-related benefits
  • child benefit,
  • housing benefit,
  • childbirth allowance,
• other benefits
  • parental allowance,
  • funeral allowance. 

As resulting from the above, the following income, for example, is included in the spouse´s own income:

• maternity allowance paid during the support period (benefit period),
• unemployment benefit,
• sickness benefits paid,
• wage compensation for temporary incapacity for work,
• all pensions granted under the Pension Insurance Act.

Which tax period does the income fall into?

The personal income tax period is defined as the calendar year, i.e. from 1 January to 31 December. The spouse´s income falls within the tax period in which the income is paid, i.e. when the spouse actually receives it.

The situation is different for income from dependent activities, i.e. from employment. If the spouse receives this income within 31 days after the end of the tax period in which it was earned, it is treated as income paid or received in that tax period (e.g. if the spouse receives income from his employer for the period of December 2021 to 31 January 2022, this income is still treated as income for 2021).

Alimony

If parents do not raise a dependent child in a jointly managed household, alimony obligation arises. The amount is determined by the court or, where appropriate, the court approves the amount agreed between the parents. Since alimony is determined as income of the child, it is not included in the spouse's own income. However, if the spouse receives an amount higher than the alimony determined as per above, the excess amount shall be included in their own income.

Property held in community of property of the spouses

In case of spouses who have joint (common) ownership, the spouse's own income does not include income:

• which is allocated to the other spouse (e.g. if a real estate in the joint ownership is assigned to the other spouse's business property, resulting in income e.g. in the form of rental income taxed by that other spouse), or
• is treated as income of the other spouse for income tax purposes (e.g. rental income or income from the sale of a property in the joint ownership which is not included in the business property is taxable under the ITA only by one of the spouses).

Subsidies provided in connection with COVID-19

Income from financial subsidies provided in connection with extraordinary measures is divided into two categories for income tax purposes:

• exempt income (this is not reported on the spouse's tax return) and
• taxable income (included in the spouse's tax return).

However, keep in mind that both of the above categories are included in the spouse's own income.

Finally, we would like to add that you should remember that if you register for the lump-sum tax regime, you lose the entitlement to claim all tax credits, i.e. including the tax credit on spouse.

Should you need our help in assessing whether you are entitled to the tax credit on spouse or directly in preparing and submitting your tax return, please do not hesitate to contact us.