To avoid creating a fiscal gap for earners near the threshold, the government has introduced a new regulation expected to affect around 250,000 taxpayers. This change will add an extra amount to their net salary, potentially up to 1,000 euros per year, without reducing the total payable taxes. The draft bill opened to the public to allow Treasury to adjust the withholding rules as needed.
This adjustment targets a very specific group. It does not lower the owed amounts; it simply changes how withholding is calculated. The current draft outlines that the regulation can be amended by public consultation, enabling Treasury to refine the rules before final approval.
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In parallel, the Treasury modified the 2023 income withholding table. The non-withholding thresholds have risen, for example from 15,947 to 17,270 euros for a single person with children. This means income that typically would not be subject to personal income tax remains untaxed at the moment, with a tax return required later if needed. Additionally, the income threshold for a maximum withholding reduction has increased from 22,000 to 35,200 euros, provided personal and family circumstances meet certain criteria, such as the case of a married individual where the spouse earns less than 1,500 euros.
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Consider a married taxpayer with two children and an income of 22,001 euros. Under the new thresholds, withholding would be about 1,186.57 euros per year versus 2,303.22 euros under the old rules. This illustrates the regulator’s aim: to prevent sharp spikes or large increases in withholding when income levels breach certain thresholds, thereby smoothing the year-to-year tax experience for families.
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The regulation introduces a limitation on withholding at a rate of 43% of the amount to be deducted from income. This amount does not necessarily match the installment payable, as it varies with personal and family circumstances, adding nuance to how the withholding is calculated and applied.
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The personal income tax is a complex levy influenced by many factors, from family status to residence and available deductions. This complexity can make it hard to gauge the full impact of the measure. However, there are situations where withholding taxes are reduced too much, leading to an end-of-year difference that the Treasury must settle in the following spring, shifting some of the tax burden to future periods. Taxpayers who prefer can request their employer apply the withholding rate they see as most appropriate, recognizing that any difference will be settled later.
The royal decree draft aligns personal income tax with two announced changes: the starting threshold for paying taxes is raised from 14,000 to 15,000 euros, and rent-related deductions expand to cover up to 21,000 euros (up from 18,000 euros). The explanatory memorandum states the purpose is to transfer the economic impact of the increased deduction to lower-income workers, allowing taxpayers to benefit from the change without waiting for the annual declaration. This aims to ease the immediate tax burden and improve liquidity for those at the lower end of the income spectrum.
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While this approach has surface appeal, tax experts caution that the effect may be limited. Most taxpayers tend to receive refunds on their annual statements, which means the main impact of the change is reduced liquidity during the year and a smaller refund at settlement time in the following year. Still, the net effect is a smoother cash flow for many households, with the possibility of paying less upfront during the year and addressing any discrepancies when filing the annual return.
Note: All figures refer to regulatory adjustments announced for the upcoming tax year and should be reviewed in the official decree when published to confirm the exact thresholds and eligibility criteria. For taxpayers seeking guidance, consulting with a tax professional can help determine the withholding setup that best matches individual circumstances, ensuring a balanced approach across the year.