Czech 2026 Progressive Tax Thresholds: Indexation and High-Income Impact

Mgr. Marek Hučík
Mgr. Marek Hučík
30.3.2026 | ARROWS law firm

In 2026, the thresholds for progressive taxation are subject to the regular indexation linked to growth in the average wage. The monthly limit for applying the basic rate has shifted to almost CZK 147,000 in gross salary. This means that managers, directors and senior employees with income above this threshold pay a higher tax on the portion of their income exceeding it. Without a proper understanding of these parameters, you risk errors in tax planning.

The illustrative image shows lawyers/experts specialising in the indexation of tax thresholds.

Quick summary

  • The threshold for the 23% tax rate in 2026 is CZK 1,762,812 per year (36 times the average wage), i.e., CZK 146,901 per month.
  • The maximum assessment base for social security contributions has increased to CZK 2,350,416. No contributions are paid on amounts above this threshold.
  • Sale of securities and ownership interests: Meeting the time test (3 years for securities, 5 years for ownership interests) remains crucial for the tax exemption.
  • Employee stock options (ESOP) and benefits: The new rules allow taxation of options to be deferred until the income is actually realized.

Change in the average wage and new thresholds for progressive taxation

For 2026, an average wage of CZK 48,967 is used for tax and insurance purposes in the Czech Republic. This amount has a direct impact on the threshold from which the second, increased tax rate applies. Under the consolidation package applicable also for 2026, the threshold for the 23% personal income tax rate is set at 36 times the average wage.

In 2026, this threshold corresponds to CZK 1,762,812 per year. On a monthly basis, this means that for employees with a monthly gross salary exceeding CZK 146,901, the portion of income above this threshold will be taxed at 23%, while the portion up to this limit is subject to the basic 15% rate.

The higher 23% rate applies only to the difference between the actual salary and the limit, while the remaining portion up to the limit is taxed at 15%. The monthly calculation of advance tax for employees is performed as follows: 15% applies to the portion of income up to 3 times the average wage, and 23% to the portion exceeding this threshold.

Related questions on progressive taxation thresholds

1. What is the exact monthly limit for applying the 23% rate in 2026?
The monthly limit is CZK 146,901 (3 times the average wage). From this amount, the higher rate applies to the portion of income that exceeds the limit.

2. Does exceeding the limit mean the rate increases for the entire salary?
No. The higher rate is applied progressively, i.e., only to the portion of income that exceeds the limit. The basic portion of income continues to be taxed at the 15% rate.

3. Does this limit apply to all employees?
Yes, the limit is set by the Czech Income Taxes Act across the board for all individuals, regardless of job title.

Maximum assessment base and the impact on social security contributions

While income tax is progressive, social security contributions are subject to a so-called cap. In 2026, the maximum assessment base is 48 times the average wage, i.e., CZK 2,350,416 per year. No social security contributions are paid on the amount exceeding this annual limit.

This creates the effect of a so-called degression of the overall tax burden for extremely high incomes. A manager with an annual income of CZK 3 million will pay income tax on the entire amount, but will pay social security contributions only on the first CZK 2.35 million.

There is no cap for health insurance contributions, and they are paid on the entire income without limitation. In practice, this means that for top managers, the employer’s payroll cost above the CZK 2.35 million per year threshold is proportionally lower, because the employer’s 24.8% social security contribution on the amount above the cap no longer applies.

Related questions on the assessment base

1. What happens if I exceed the maximum assessment base?
Once, in a calendar year, the total of your assessment bases reaches CZK 2,350,416, both you and your employer stop paying social security contributions on further income in that year.

2. Does the maximum assessment base apply the same way to employees and employers?
Yes, the cap applies to contributions on both sides.

3. Will this affect my future pension?
Yes, only income up to the maximum assessment base is taken into account for pension calculation. Amounts above this cap are not reflected in the pension assessment base.

Employee stock options and shares (ESOP)

In the area of employee share and option plans (ESOP), rules apply in 2026 that mitigate earlier disadvantages. This is a regime that addresses the issue of so-called “taxation without cash”. The current regulation in the Czech Income Taxes Act allows taxation of income from employee options and shares to be deferred until the moment the gain is actually realized.

The income is still considered employment income and is also subject to social security and health insurance contributions; however, the obligation to pay tax and insurance is deferred in time until the moment when the employee typically has funds available. Attorneys at ARROWS advokátní kanceláře help companies set up ESOP plans so that they meet the conditions for this more advantageous deferred-payment regime.

Who can advise you on this issue?

Sale of companies and ownership interests

For managers and investors, taxation of capital income is a key area. In 2026, individuals in the Czech Republic can still benefit from an exemption for income from the sale of securities and ownership interests, provided the so-called time test is met.

For securities (shares, bonds, mutual fund units), the exemption applies if the period between acquisition and sale exceeds 3 years. For ownership interests in a limited liability company (s.r.o.), the holding period must exceed 5 years for the income to be exempt from tax.

If the exempt income exceeds CZK 5,000,000, you are required to file a Notice of Exempt Income with the tax administrator. If you do not meet the time test, the income is taxed at 15% or 23%, depending on the overall tax base.

However, it is necessary to monitor whether the ownership interest was included in the business assets of a self-employed individual, because in such a case the exemption does not apply.

Table of risks and key issues

Risks and sanctions

How ARROWS can help (office@arws.cz)

Incorrect application of the progressive rate: Employees with irregular income (bonuses) may be surprised by an additional tax payment in the annual tax reconciliation if they have multiple employers or concurrent income.

Tax analysis: We will review your income and help prepare your tax return so that all tax credits and deductions are applied and no underpayment or penalties arise.

Failure to meet the notification obligation: The sale of an ownership interest or shares for more than CZK 5 million, even if exempt, must be reported to the Czech Tax Authority (Financial Office). The fine for failure to notify can reach hundreds of thousands to millions of Czech crowns.

Compliance service: We will monitor all deadlines and obligations towards the tax administrator on your behalf.

Incorrect ESOP setup: If an employee plan is not properly structured, it may be additionally taxed as ordinary salary without the benefit of deferral, potentially including penalties and late-payment interest.

Structuring incentive programmes: ARROWS, a Prague-based law firm, will set the legal and tax parameters of ESOP plans, prepare the contractual documentation, and ensure compliance with the Czech Labour Code and tax regulations.

Benefits contrary to the law: Providing benefits “in exchange for salary” (salary swap) is not tax-deductible and results in additional assessment of tax and social security/health insurance contributions.

Review of the benefits system: We will audit your remuneration system and set rules for drawing benefits so that they are tax-safe and comply with statutory limits.

How your tax calculation will change in practice

Let’s illustrate the impacts with three model examples for 2026. Case 1 concerns middle management with an annual salary of CZK 1,800,000. The higher 23% tax applies only to the fraction of income above the threshold, while social security contributions are paid on the entire amount because it did not exceed the cap.

Case 2 presents a senior manager with an annual salary of CZK 2,500,000. Here, both thresholds already apply. Income tax is calculated progressively, but social security contributions are paid only on the amount of CZK 2,350,416. If an investor met the 5-year time test upon the sale of a company, the income is fully exempt from income tax.

Employee benefits in 2026

In 2026, the trend of tightening the rules for tax-exempt non-cash benefits continues. An important rule is the ban on so-called “salary swap”, i.e., providing benefits in exchange for a reduction in contractual salary. For the exemption of leisure-time benefits, a total annual limit applies in the amount of one half of the average wage.

This single limit aggregates contributions for holidays, pharmacy purchases, theatre tickets, or sports. If an employer provides benefits above this framework, the excess amount is considered taxable income of the employee. Our attorneys in Prague at ARROWS can help set internal policies to avoid additional assessments during an audit.

New obligations for employers

A major administrative change affecting payroll departments is preparation for the introduction of the Single Monthly Employer Report (JMHZ). The aim is to unify reporting for the Czech Social Security Administration and health insurance companies.

The system will require more detailed data on employees and their income in a single submission. For managers and statutory bodies, this means increased pressure on data accuracy in HR systems. We recommend monitoring the current legislative status.

Conclusion

The year 2026 brings new nominal thresholds for taxes and contributions for managers and high-income groups. Knowing the exact limits and the rules for exemption of investment income is essential for effective personal finance management. The key is not to underestimate administrative obligations, such as reporting exempt income.

The lawyers at ARROWS, a Prague-based law firm, deal with these issues on a daily basis and handle tax optimisation and compliance for managers and corporations. If you need to review your contracts, set up an ESOP, or are dealing with the sale of an ownership interest in a company, contact us. Simply email office@arws.cz and we will arrange a non-binding consultation.

FAQ – Most common legal questions on progressive tax in 2026

1. From what salary in 2026 does the higher 23% tax rate apply?
The higher rate applies to the portion of income exceeding CZK 146,901 per month (or CZK 1,762,812 per year). Income up to this threshold is taxed at 15%.

2. Do I have to tax the sale of an ownership interest in a company if I owned it for more than 5 years?
Generally no, if it is an ownership interest that was not included in business assets. The income is exempt. However, you have an obligation to file a notification with the Czech Tax Authority (Financial Office) if the income exceeded CZK 5 million.

3. How are employee shares (ESOP) taxed?
The income is taxed as employment income (salary), but the tax liability is deferred until the moment of realisation (e.g., sale of shares). It is also subject to social security/health insurance contributions (unless the annual cap is exceeded).

4. What is the limit for benefit cards and leisure-time benefits?
The limit is aggregate for all leisure-time benefits (recreation, health, sport, culture) and equals one half of the average wage, i.e., approx. CZK 24,483 per year. Above this limit, the benefit is subject to tax and contributions.

5. What is the main benefit of the current ESOP regime?
The main benefit is the cash-flow effect. You do not pay tax and contributions at the moment you receive a “paper” stake, but only at the moment you sell it or another event specified by law occurs.

Notice: The information contained in this article is of a general informational nature only and serves for basic orientation in the matter under the legal framework applicable as of 2026. Although we take the utmost care to ensure maximum accuracy of the content, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client security we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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