Whether a person is self-employed or an employee, a payment is due. A new tax introduced in 2023, associated with the Intergenerational Equality Mechanism (MEI), affects all registered workers and Social Security contributions. It represents a salary-based deduction that will influence the take-home pay for many workers, with a broad impact on the national payroll system used to fund pensions.
What is MEI? New tax coming in 2023
The Intergenerational Equality Mechanism replaces the old Sustainability Factor and is designed as a temporary and contingent measure. Its purpose is to finance pensions by rebalancing the distribution of the funding burden across generations, ensuring a fair contribution to the retirement system while addressing demographic pressures.
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With an aging population, rising unemployment, ongoing retirement shifts for the baby-boomer generation, and a near-empty pension reserve fund, the government faces tough times for pension funding. The MEI is part of broader reforms aimed at stabilizing pension finances in the near term.
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In addition to other reform measures, the MEI was published in the official gazette. This mechanism affects income (contributions) rather than benefits (expenses) and differs from the repealed Sustainability Factor. Unlike the factor, which tied benefits to lifespan, the Intergenerational Equality Mechanism activates only when necessary and on a temporary basis to balance costs.
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What will the new tax of the Intergenerational Equity Mechanism look like?
The MEI does not reduce future MEI pensions in January 2023, and the amount remains unchanged unlike the old Sustainability Factor. It introduces a new payroll deduction affecting all workers, regardless of income. The deduction percentage is set to be the same across the board.
What taxes do I currently have to pay in the province of Alicante?
This MEI is implemented as a new contribution concept. Individuals registered with SGK will see a payroll reduction of 0.6%, with the employer contributing 0.5% and the employee paying 0.1%. For self-employed workers, unions estimate the average impact to be around 5 euros per month, depending on their earnings level.
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In this framework, the government seeks to generate sufficient funds to cover the rising cost of future pensions. The aim is to raise approximately 22,000 million euros by 2032, at which point the new tax scheme is expected to wind down.
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How will the new tax affect you?
A 0.6% deduction will be taken from workers’ salaries to fund this new tax, effective January 1, 2023. Employers will contribute 0.5% of this amount, while workers will cover the remaining 0.1%. For self-employed unions, the typical monthly impact is estimated at about 5 euros.
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For example, a worker earning a gross salary of 2,000 euros would see the MEI deduction amount to around 12 euros per month, with roughly 10 euros paid by the employer and 2 euros by the employee.