According to the Financial Administration, it is a gift provided in connection with business or employment income and must be taxed. Depending on whose pocket the tip ends up in, it is taxed as income of either the business owner or the employee. 🙂
Tips received by employees
Strictly speaking, the entire tip should be added to the employee’s wages. For employees in a standard employment relationship or under an agreement exceeding the contribution threshold, the employer must also deduct social security, health insurance and tax from the tips.
For example, if tips total 4.000 Kč for the month:
| Total tips: | 4.000 Kč |
|---|---|
| Tax (15 %) | -600 Kč |
| Social security (6.5 %) | -260 Kč |
| Health insurance (4.5%) | -180 Kč |
| The employee receives net: | 2.960 Kč |
But it does not end there: it also costs the employer more. Although the employer is merely passing the tips on to the employee, tips form part of the employee’s gross pay, so employer contributions also apply:
| Tips passed on to the employee: | 4.000 Kč |
| Social security (24.8 %) | +992 Kč |
| Health insurance (9 %) | +360 Kč |
| Total employer costs: | +1.352 Kč |
If the combined wages and tips remain within the limit of 10 thousand Kč for a DPP or 4 thousand Kč for a DPČ, tips are free of contributions and subject only to income tax.
Tips retained by the employer
If a business owner keeps a tip, it forms part of their takings. Just like ordinary takings, it must be taxed in the standard income tax return for the whole year.
And what about VAT?
If the employer is VAT-registered, VAT is neither calculated nor paid on tips :-).
The article makes it clear that tips should be taxed properly and are not money ‘on the side’. Nevertheless, many businesses refuse to follow this rule. This is also why quite a few businesses will tell you they do not accept tips by card. In most cases, this simply indicates that the business is not paying what it should on cash tips. It is up to you whether to support this system of ‘getting round the rules’. If you are unsure, feel free to get in touch and we will look at it together. 🙂