Tax Withholding exemption and its impact on wages and pensions in 2023–2024

The exemption marks the gross annual earnings level at which an employer stops withholding income tax. It identifies the portion of pay shielded from payroll withholding under current rules. In practical terms, this threshold determines when wages begin to be taxed at source and how much of a paycheck remains untouched by withholding during the year. This threshold serves as a protective buffer for workers, aiming to ensure that the smallest earnings are not taxed immediately and that tax withholding scales with income level. Source: Tax Authority.

What is the current limit?

Withholding rates depend on personal and family circumstances, the worker’s situation, and the yearly salary. Generally, higher salaries attract higher withholding percentages, ranging from 19% to 47%. There is a special rule for annual wages below 35 200 euros that fixes an amount under which the employer does not withhold. This structure means that some earners see a portion of pay pass through without tax taken at source, while others face progressively higher withholding as earnings rise. Source: Tax Authority.

In 2023 the minimum withholding exemption was commonly set at 15 000 euros, with the portion of salary below this threshold not subject to withholding. The exemption could rise to 19 241 euros when a worker has two or more children and the spouse earns less than 1 500 euros annually. These figures show how family size and income influence how much income tax is withheld during the year. Source: Tax Authority.

How does it affect the interprofessional minimum wage?

In 2023, for a single taxpayer without children, the interprofessional minimum wage of 15 120 euros was taxed only for the 120 euros above the 15 000 euros exemption. That meant the minimum wage faced annual withholding of 39.31 euros, equivalent to about 2.80 euros less in each of the 14 payments. The practical takeaway is that the exemption acts as a buffer, reducing yearly tax withheld from the smallest earnings, while larger wages see stronger withholding depending on their position relative to the threshold. Source: Tax Authority.

What will happen in 2024?

The interprofessional minimum wage for 2024 is 15 876 euros per year, or 1 134 euros for each of the 14 payments, up from 15 120 euros in 2023. If the exemption stays at 15 000 euros, total withholding on the annual income could rise by 876 euros, with roughly 325.46 euros withdrawn in total for the year. This would trim about 23.25 euros from each month’s payslip and would absorb almost half of the 54 euro increase in this year’s minimum wage. The change means higher earners may see slightly more withheld, while those near the threshold continue to benefit from a substantial tax shield. Still, a higher tax-free minimum benefits all salaries below 35 200 euros per year. A fixed exemption does not apply to salaries above that amount, where withholding is calculated using more complex income tax rules that consider personal, family, economic, and regional factors. Source: Tax Authority.

What will the Treasury do?

The ministry has indicated it plans to raise the current minimum exemption from 15 000 euros to lessen the impact of income tax. Government explanations highlight that the minimum wage has risen in recent years, but the exact size of the exemption’s increase remains to be clarified. There is advocacy to set the exemption equal to the interprofessional minimum wage, which would be 15 876 euros. New regulations aligning personal income tax withholding with the higher minimum wage are expected to be approved, with possible changes to the draft personal income tax regulations during the 2024 General State Budgets period. Source: Tax Authority.

What consequences will the increase in the exemption have?

If the exemption minimum is raised to 15 876 euros for the interprofessional minimum wage in 2024, the entire year could see no withholding on the minimum wage. For example, increasing the exemption from 15 000 to 15 500 euros would mean the minimum wage is taxed only on the excess of 376 euros, equating to about 158 euros per year or roughly 11 euros per month across 14 payments. This shift would ease the cash flow for workers earning near the exemption threshold, while keeping other tax rules intact for higher incomes. Source: Tax Authority.

How is retirement affected?

The same tax-free minimum applies to pensions. Based on calculations from the same body, a retiree receiving 15 600 euros a year and with a 3.8% pension increase would see withholding of 42% on the amount above 15 000 euros if not exempt. This would imply about 35 euros withheld from each monthly pension payment under the higher exemption framework. The policy intention is to maintain consistency between wages and pensions so that low-income retirees receive a predictable level of tax relief, aligned with the overall tax structure. Source: Tax Authority.

Is the minimum exemption from withholding tax the same as the declaration obligation?

The two thresholds are not identical. The amount subject to withholding tax can exceed 15 000 euros in many cases, and the decision of who must file an income tax return depends on total annual income, with many workers liable when overall work income surpasses 22 000 euros per year. This distinction matters because some individuals with higher earnings or additional sources of income may still face filing obligations even if their withholding shield is large or small. Keeping track of the thresholds helps taxpayers anticipate whether they need to file a return and how much tax may be due at year-end. Source: Tax Authority.