The February payroll will surprise thousands of taxpayers. If your annual income is under 35,200 euros (roughly 2,500 euros per month paid in 14 installments), you are in a favorable position. This does not raise salaries, but it introduces adjustments to personal income tax that can add up to 1,000 euros per year to the net pay in some cases.
This fiscal measure, which affects about 80 percent of workers, is an income tax deduction for earnings under 35,200 euros per year. Consequently, taxpayers earning up to 15,000 euros annually may be exempt from paying personal income tax, with the previous threshold of 14,000 euros having increased. Those earning up to 21,000 euros per year will also benefit from reduced withholdings, as tax offices apply the adjustment on behalf of the taxpayer. Individuals with annual income between 21,000 and 35,200 euros will see lower withholding amounts. The change targets a specific group and does not imply a reduction in total payable tax, but a smoothing of withholding amounts over the year.
These are the changes in the IRPF that will affect your payroll.
Under this regulation the Ministry of Finance updates the withholding table for 2023 for the current year. First, the thresholds at which withholding does not apply are raised. For example, the exemption increases from 15,947 to 17,270 euros for a single person with children, meaning that income generally not subject to personal income tax will not require a return from the Treasury.
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Second, the threshold to qualify for a limitation on maximum withholding remains in effect as long as certain personal and family conditions are met. For instance, a married taxpayer whose spouse earns less than 1,500 euros per year may still benefit from lower withholdings.
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For example, a taxpayer who is married with two children and earns 22,001 euros annually will have a withheld amount of 1,186.57 euros under the new thresholds, compared with 2,303.22 euros under the old rules. This demonstrates that the goal of the regulatory change is to prevent large jumps or sharp increases in withholding when income crosses certain limits.
Personal Income Tax is a complex concept that depends on many factors including family structure, place of residence and applicable deductions. This complexity can make it challenging to fully grasp its scope.
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Sometimes withholding taxes can be quite low, and taxpayers may owe the Treasury the difference when the annual tax return is filed. The changes will be implemented in the first quarter of 2024 and may shift the payment date of tax obligations. Taxpayers who want to minimize surprises can ask their employer to apply the withholdings they feel are most appropriate, as any underwithholding will be settled later on the tax return.