The Government approves a small tax reduction for medium and low incomes and consolidates that the minimum wage does not pay personal income tax
The Government approved this Tuesday in the Council of Ministers a small tax reduction for medium and low incomes and consolidates in the personal income tax law the non-taxation of minimum wage interprofessional. Taken together, these two measures will affect 5.2 million taxpayers and will mean a cost to the public coffers (or a saving for those who benefit) of 1,385 million euros, according to the Executive estimates.
These measures are part of a new extension of the anti-crisis decree due to the war in Ukraine and the Middle East which also includes the temporary reduction of VAT on olive oil to 0%; the 2% salary increase for public employees or the updating of payments on account for the autonomous communities and city councils, among other measures.
The fiscal relief announced by Montero is reflected in practice in a increase in the tax benefit enjoyed by taxpayers with work income of up to 22,000 euros gross per year. With the modification that the Treasury has approved, these taxpayers will be able to reduce their tax base (the income figure on which the Treasury then takes a percentage) up to 7,302 euros per year. That is, about 800 euros more additional deduction than last year.
However, the relief that taxpayers will notice will be discreet. For example, a worker with the most frequent salary (18,502.54 euros gross per year) will have to pay about 200 euros less per year in withholdings. The withholding that must be paid to the Tax Agency (AEAT) will be reduced from 1,328 in 2023 to 1,129 euros in 2024.
In the case of a pensioner between 65 and 74 years old with a benefit of 1,214 euros per month (17,000 per year), The savings will be 374 euros in 2024. And in the declaration of a married worker with two children of five and seven years with a salary of 20,000 euros, the savings would be just 83 euros annually.
The Executive has already intervened on the reduction of the tax base for work income in 2022. In the fiscal package that accompanied the 2023 General State Budget, it expanded the income threshold that allows you to benefit from this bonus and also the amount of the tax base that can be reduced.
The other side of the coin of these tax cuts for medium and modest incomes is that of rest of taxpayers, who have seen how the percentage of their income that will be paid personal income tax has increased since 2019 by not adapting the tax rates to the new price reality. In its 2023 Annual Report, the Bank of Spain estimated that the average rate paid in Spain for personal income tax in 2024 was 14.7%, almost two points more than in 2019. Of this increase, 70% is due to the non-deflation of rates, they concluded.
A minimum wage with zero personal income tax
Beyond the tax reduction, the Government has introduced a modification to the Personal Income Tax Law to reflect in it the exemption from taxing incomes lower than the minimum interprofessional wage (15,876 gross euros per year in 2024). In this way, the Executive consolidates this reality in the norm, which, however, has already been occurring since the beginning of the year.
Last February, the Government already approved in the Council of Ministers a modification of the income tax regulations so that taxpayers in that income range are not obliged to pay withholdings. In this way, people who collect the SMI full-time will go from paying 325 euros in 2023 to zero this year.
