B Law & Tax
29 January 2024

Tax Advisor: Alignment of TGIF with the Minimum Wage: Modernization and Fiscal Consequences in 202

The Cabinet will increase the minimum exempt amount in the Individual Income Tax (TGIF) in 2024 from €15,000 to €15,876, aiming to align it with the recent raise in the Minimum Interprofessional Wage (SMI), which precisely amounts to the same figure on an annual basis.

Fiscal impact of the SMI increases in 2024

This information is derived from the draft Royal Decree presented for public scrutiny by the Ministry of Finance and disclosed by Europa Press. The document indicates that the increase in the Minimum Interprofessional Wage (SMI) to €15,875 annually in fourteen payments for the year 2024, agreed upon between the government and unions, requires a revision of the Personal Income Tax (IRPF) regulations. The goal is to prevent taxpayers earning this salary from being subject to withholdings or advance payments.

Furthermore, to prevent potential “jump errors,” the measure is extended to taxpayers with net work income of up to €19,747.5 annually, who will experience a reduction in their withholdings or advance payments.

With this new regulation, the minimum interprofessional wage will not be subject to withholdings, as the exempt minimum will coincide with the same annual amount as the SMI. Additionally, salaries close to this minimum will also benefit from the improvement in the corresponding reduction, thus avoiding an obvious “jump error” resulting in considerably higher withholdings.

According to estimates from the Ministry of Finance, this increase in the exempt minimum and the reduction of withholdings for salaries close to the SMI will have a revenue impact of €1.385 billion in cash terms. However, due to the nature of the IRPF as a tax partially transferred to regional administrations, this amount will be distributed among them and the General State Administration.

Modifications in IRPF withholdings due to the increase in the exempt minimum

Specifically, the revision of the IRPF regulations raises incomes without withholdings to the level of the SMI, considering the taxpayer’s situation in terms of marriage and children. For example, according to the proposal, for a married taxpayer whose spouse earns more than €1,500 annually, excluding exempt amounts, and has a child, the exempt minimum will be €16,342. With two or more children, it will be €16,867.

For a single, widowed, divorced, or legally separated taxpayer with one child, the exempt minimum will be €17,644, and with two or more children, it will be €18,694.

In the case of a taxpayer without children whose spouse earns less than €1,500 annually, excluding exempt amounts, the minimum will be €17,197. If they have one child, the minimum will be €18,130, and if they have two or more children, it will be €19,262.

In summary:

The government will increase the minimum exempt amount in TGIF to €15,876 in 2024 to align it with the increase in the SMI, modernizing the tax and avoiding withholdings on the SMI. The measure includes adjustments to prevent “jump errors” and benefit salaries close to the minimum wage.

The fiscal impact of €1.385 billion will be distributed between regional administrations and the General State Administration, due to the nature of the IRPF.

Modifications in IRPF withholdings will be approved with the increase in the SMI in the same Council of Ministers and adjusted later, possibly in the 2024 General State Budgets, considering the taxpayer’s situation in terms of marriage and children.

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