Freelancers in Czechia take note: Insurance costs set to surge next year

Are you working as a self-employed person or freelancer in Czechia? Thanks to the government’s new austerity package, there’s a good chance that your health and social insurance contributions will jump significantly in 2024.

Czech finance server Peníze.cz outlines how things will look for freelancers and the self-employed under the government’s new plan. The minimum monthly advance payments for social and health insurance will rise by a total of CZK 1,154 next year. This is in sharp contrast to the standard increase of recent years, which has been around CZK 250. 

What’s behind the significant increase? The state is changing the way it calculates the amount of insurance self-employed people should pay.

"From 2024, the minimum assessment basis for self-employed people’s social insurance payments should increase from 25 percent to 30 percent of the national average wage," said Gabriela Krušinová of the Ministry of Finance's public relations department. 

For those who are self-employed for the purpose of “secondary activities” – that is, people who do freelance work only as a source of supplementary income – social insurance payments will rise only marginally: from CZK 1,178 to CZK 1,413. Health insurance payments are not needed for this category of self-employed workers.

Changes to social insurance payments take effect when the self-employed file their 2023 tax reports, usually in April or May, while health insurance increases will take force from January 2024.

The so-called “flat tax,” which allows the self-employed to pay a single amount covering income tax and insurance premiums, will likewise increase. Initially applying only to those earning under CZK 1 million annually, the flat tax was expanded in 2023 to include earners up to CZK 2 million.

Payers of the flat tax who are in the first band will owe CZK 7,498 monthly in 2024, up by CZK 1,290 from 2023. Those in the second band will pay CZK 745 more monthly – the total figure will be CZK 16,745. The third band – for the highest earners – will need to pay CZK 27,193 – an increase of around CZK 1,000 from this year’s level.

Self-employed workers have until Jan. 10, 2024, to register for the new flat tax rates. Those who used it in 2023 will automatically be assigned these rates, unless they opt out.

Some experts say the changes will benefit those in higher flat tax bands, helping equalize the current imbalance compared to the (currently much lower) payments paid by those in the first band. Income tax rates for people who are employed by companies will also increase next year, making higher self-employed earners comparatively better off.

The Chamber of Deputies passed the hotly contested consolidation package last week. The Senate and Czech president must still approve it before it comes into law in time for next year; this is expected to take place sometime in November.

While the consolidation package aims to increase revenue amid economic uncertainty, the sharp rise in insurance payments is likely to be an unpleasant surprise for self-employed citizens already facing inflationary pressures.