The minimum wage will be subject to personal income tax for the first time after the 2025 increase

Madrid / BarcelonaThe Council of Ministers approved this Tuesday the increase of the minimum interprofessional wage (SMI) for 2025. This is an increase of 50 euros per month and leaves it at 1,184 euros gross per month in 14 payments, which translates into 16,576 euros per year. The increase, agreed with the majority unions, CCOO and UGT, and without the support of the CEOE employers' association, will benefit some 2.4 million workers, mainly in the hospitality, retail and agricultural sectors, and will be retroactive: that is, it will take effect from January 1, 2025. With this new increase, the minimum wage in Spain has grown by more than 60% since 2018, when it stood at.

But the main novelty this year is not the increase, but that for the first time a part of the people who earn the minimum wage will pay income tax. Until now, with each increase in the minimum wage, the Treasury (PSOE) had increased the minimum exemption in the IRPF, so that workers who receive the SMI did not have to pay it. This will not happen in 2025, despite the fact that the Ministry of Labor, under the leadership of Yolanda Díaz (Sumar), was in favor. Finally, the Treasury has closed the door.

Clash between Díaz and Montero

The clash between departments was evident in the press conference after the cabinet meeting. Díaz took advantage of her speech to distance herself from the decision of María Jesús Montero's portfolio: "Of course, tax education must be done in Spain, but the question is not whether to raise or lower taxes, but who should pay them. From my political space, Sumar, we believe that this is where it is necessary to put the focus." In fact, the party has already announced that it will present a bill in the Congress of Deputies to correct the decision of the Treasury and Díaz has defended it from the table of the cabinet meeting.

The Minister of Labor has even criticized that "a tax gift has just been made to the rentiers," in reference to the decision of the Ministry of Housing (PSOE) to approve 100% exemptions in personal income tax for owners who lower rents. "Our position is well known, yes, in favour of fiscal pedagogy, but it should start at the top," Díaz said. The minister also said that she learned of the Treasury's decision "through the media" and that "it has not been discussed" in the Council of Ministers.

The Ministry of Finance believes that opening this precedent helps this "fiscal pedagogy". "The important thing is to guarantee that the salary received by workers who receive the minimum wage is around 60% of the average salary and that is currently being fulfilled. What the progressive and left-wing forces cannot do is stigmatize taxes," say sources from the portfolio led by María Jesús Montero (PSOE). For her part, the spokesperson for the Spanish government, Pilar Alegría, tried to play down the tension and stressed that "the topic of the day" was the rise in the minimum wage.

It should be noted that the taxation will not affect all beneficiaries of the increase in the SMI, but rather some 500,000 workers – single and without children – according to calculations by the SMI expert committee. "This tax is adapted to the personal circumstances of each taxpayer," recalls José María Durán, professor at the Faculty of Economics and Business at the University of Barcelona. "The bulk of workers who earn the SMI will continue without withholdings for personal income tax," reiterates the Treasury. For example, a taxpayer with a partner and a child under three years of age will not have any withholdings.

Workers who will notice it in their monthly pay will be affected by the lower IRPF brackets, for which the Treasury will withhold a part of their salary – for the 2026 income tax return, the regional part of the IRPF will come into play.

Open debate

Various experts consulted confirm that this debate has been opened due to the increase in the minimum wage in recent years and its approximation to the most common salary. "You pay personal income tax because you have greater economic capacity and what you earn is not only used for subsistence. The key to this tax is that it adapts. You do not pay taxes on the entire salary, but on a part of it," recalls Durán.

"From the aggregate point of view of income [in the public coffers], the impact is small, but it is important in terms of net [income] for those who receive the minimum wage because it would no longer be 60% of the average salary," says Jorge Uxó, professor of applied economics at the Complutense University of Madrid (UCM). As a result, the academic suggests that just as the increase in the minimum wage has been progressive over time, the taxation by personal income tax by these recipients could also have been staggered. "Perhaps the debate should not be all or nothing," he points out.

For the professor of applied economics at the UB, Raúl Ramos, the minimum wage and taxation must be aligned and must be progressively adjusted. In this sense, he considers that "it makes more sense" that the option of the lowest salaries also starting to be taxed by the IRPF has finally been considered. "It should not happen that someone who pays taxes ends up worse than someone who is below the exempt minimum," says the expert. He also insists on the need to update the IRPF brackets to contain the impact of inflation and prevent the lowest incomes from ending up paying more.

In this sense, academics such as Uxó remind us that we must also focus on tax pedagogy regarding high incomes. "There are pending reforms such as the taxation of capital income," recalls the economist. A thesis that was also defended by the Ministry of Labour.