Government raises the minimum wage investment to 1,134 euros: a move expected to lift millions
This week, the Council of Ministers approved a royal decree that increases the earned income deduction and the personal income tax exemption, broadening the relief for lower earners. The change aims to keep the interprofessional minimum wage from triggering higher income tax burdens as it rises from 1,080 euros in 2023 to 1,134 euros in 2024 (for 14 payments). The goal is to prevent a tax drag on workers at the bottom of the pay scale.
In practical terms, a taxpayer earning the new SMI amount of 15,876 euros in 2024 would owe zero income tax, according to initial statements at the press conference following the ministers’ meeting. The First Vice President explained that, without these adjustments, a tax liability could emerge. Calculations from the Register of Tax Advisory Economists indicate a potential saving of about 330 euros under the updated regime (Reaf). (Reaf)
The royal decree, which updates personal income tax rules, not only raises the earned income deduction but also increases the minimum withholding exemption aligned with the higher SMI level. The exemption rises from 15,120 euros in 2023 to 15,875 euros in 2024, matching the annual SMI. This alignment guarantees that the SMI reaches its recipients without interruption and minimizes withholding on wages. (Reaf)
The adjustment to the withholding exemption also translates into lower tax withholdings for gross incomes up to certain thresholds, enhancing relief for low- and middle-income workers alike. (Reaf)
Deduction from earned income
Treasury sources confirm that the royal decree approved this Tuesday mirrors the decision announced on January 17. The rule specifies that workers with a net salary at or below 14,852 euros in 2024 will qualify for a larger deduction, increasing the overall labor income relief to 7,302 euros, which is 1,737 euros more than before. This enhanced deduction will be reflected when filing the 2024 income tax return next year. (Reaf)
Under the new structure, the net salary-related deduction scales down as earnings rise, reaching zero euros once a certain salary level is surpassed (based on a net salary of 19,747.5 euros). The expansion, therefore, works as a tapering benefit that provides more relief to lower earners while gradually phasing out for higher incomes. (Reaf)
The First Vice President and Finance Minister stressed that the measures approved on Tuesday will benefit roughly 5.2 million low-income workers and retirees, delivering meaningful tax savings for many taxpayers. (Reaf)
Examples by income level
Tax consultancy models from the Register of Tax Advisory Economists and the General Council of Economists illustrate the impact. They show a tax saving of around 327 euros for someone earning the minimum interprofessional wage of 15,876 euros under the 2023 taxation regime. (Reaf)
For a gross annual salary of 17,000 euros, the savings are about 210 euros; at 18,000 euros, the tax is roughly 100 euros lower than in 2023. Savings gradually decline as earnings rise, with figures approaching a small offset near 21,000 euros. (Reaf)
Reaf notes that these projections rely on the assumption that regional tax rates align with the state rate, though actual rates vary by autonomous community. They emphasize that a taxpayer earning the new SMI in 2024 would owe zero euros in personal income tax in any autonomous community, under the improved regime. (Reaf)