Another 570,000 households to pay no income tax next year
Today there are about 1.1 million families exempt from IRS. With the rise of the minimum wage in 2022, there will be 570,000 more beneficiaries.
The rise in the minimum wage to €705 and the consequent update of the existence minimum will mean that in 2022, 570,000 more households will be exempt from IRS, according to the ministry of finance.
Those 570,000 households will be added to the 1.1 million families that currently do not pay IRS because they are covered by the minimum income, the amount of net income on which no tax is levied.
The IRS Code states that the application of IRS rates (which apply to income brackets) “cannot result, for holders of income predominantly from dependent work, in activities provided for in the table approved in the annexe to Ministerial Order 1011/2001, of August 21 [independent work], except for code 15, or in pensions, in the availability of a net income less than” 1.5 x 14 the value of the Social Support Index (IAS).
The same legislation also safeguards that the net taxable income resulting from that formula (1.5 x 14 the value of the IAS) “cannot, per beneficiary, be less than the annual value of the minimum monthly salary”.
In practice, this means that due to increasing the national minimum wage to €705, the minimum of existence will correspond to €9,870 (14 x €705).
This minimum subsistence level will be used in 2023 when taxpayers calculate their income tax for 2022, but it will also start to be applied next year through withholding taxes.
The IRS withholding table that will apply from January 2022, published earlier this month, was designed to exempt salaries and pensions of up to €710 from this monthly tax deduction.
In 2021, the exemption from the monthly withholding of personal income tax is limited to salaries and pensions of up to €686.
The update of the IRS tables will mean that, as a whole, withholding tax for employees and pensioners will fall by €175 million in 2022.
The new tables do not fully accommodate the situation in the proposed 2022 State Budget of extending the IRS tax brackets from seven to nine – a measure that the government has already said it is willing to recover if it wins the January 30 elections.
Asked whether, in this scenario, an update of the withholding tax table is planned for 2022, the same official source said that these tables “reflect the policy changes, and, as such, were published in the dispatch”.
