Spain’s Minimum Wage Rise to Be Exempt from Income Tax, Says Social Security Minister

Elma Saiz, Spain's Social Security Minister and government spokesperson, said the government plans to shield workers from tax on the next increase to Spain's minimum wage. A new deduction would let full-time SMI earners keep the raise, apart from social security contributions.

The government is preparing the measure for the 2027 increase, but it has not set an official wage figure or completed the tax change. Saiz said the raise would be around 5% and probably at least 4%.

The current SMI is €1,221 a month, paid in 14 instalments, or €17,094 a year before deductions. The headline promise is not yet a new exemption in law.

SMI workers would keep the raise but still pay social contributions

The proposed deduction is intended to leave full-time workers earning the SMI with no tax bill on that pay when they file their return. Their social security contributions would still come out of their earnings.

That distinction is already part of the current system in practice: qualifying workers can owe no tax after a deduction, but some must first file a return to recover money withheld from their pay. The repayment arrives the following year. Saiz’s plan would use a deduction again, rather than simply removing the SMI from the tax system.

The wage decree can move ahead before lawmakers approve the tax change

The two parts of the plan follow different routes. Under article 27.1 of the Workers' Statute, the government sets the SMI by royal decree, without a parliamentary vote to validate the amount.

Labour first asks an expert committee to recommend a range that would protect purchasing power. The committee’s deadline to deliver its advice on the 2027 rate is November 1. The ministry then begins talks with the most representative unions and employers.

Neither the experts’ advice nor the positions taken in those talks bind the government. If employers and unions do not agree, the government can set the rate itself.

The deduction needs legislation. Congress must pass a law, either through its Permanent Deputation or through the new Congress that follows the November 29, 2026 election. The government intends to pursue the change even if Parliament has been dissolved.

Treasury sources said the proposal has no settled timetable. “That has to come after the SMI is raised,” they said.

The current deduction already cancels tax for qualifying low earners

Spain has applied a labour-income deduction since January 1, 2026, to offset tax for people earning up to €17,094 a year. The deduction is €590.89 and declines as income rises, reaching the end of its phaseout at €20,048.45, if the worker meets the requirements.

A separate adjustment earlier in the year lifted the deduction from €340 to €591. The rules account for different tax-free thresholds: €15,876 for people with two or more jobs and €22,000 for those with one job. The deduction also tapers for earnings above the SMI, preventing a small pay increase from producing a larger tax bill than the extra wages.

The adjustment means a worker earning €17,000 would owe no IRPF, compared with 356 euros in 2025, when the SMI was €16,576. It does not mean every worker receiving that salary automatically avoids filing or has no withholding during the year.

The proposed raise would exceed inflation if it reaches five percent

No 2027 amount has been approved. At 4%, the SMI would be about €1,270 a month and €17,778 a year. At 5%, it would be roughly €1,282 monthly and €17,949 annually.

The government says it wants the increase to at least match inflation, which stands at 4.9%. The CCOO union is seeking a rise above 5%. Labour Minister and Second Deputy Prime Minister Yolanda Díaz had also signalled she wanted a new increase before the election, potentially near 5%.

The SMI has climbed 66% from €735.90 a month in 2018 to its current level. Setting the wage and deciding how to tax it have become separate steps in that increase.

The present system replaced automatic threshold increases

Before 2025, successive SMI increases came with matching adjustments to tax thresholds. In the last two years, the government instead used a deduction on tax returns. Earlier, the wage had remained below the €14,000 annual threshold established in the 2018 General State Budgets, which were extended until 2020.

Treasury technicians’ group Gestha estimated that about three million taxpayers would need to file a return to use the 2026 deduction, at a cost to public finances of around €200 million. The government says IRPF reductions since 2023 have saved almost 11.16 billion for nearly ten million low- and middle-income earners.

Gestha advised employees earning between €15,876 and €20,000 to file a return. Those earning between €20,000 and €22,000, outside the deduction’s reach, would benefit from filing only if other deductions could recover some withheld tax. The group also called for the deduction to cover pensioners and unemployed people, whose income can count as employment earnings.

Feijóo wants an automatic law while the government weighs a deduction

Popular Party leader Alberto Núñez Feijóo has argued that the state collects more from the SMI through contributions and tax as wages rise. In an interview, presenter Aimar Bretos corrected him that SMI earners already receive a deduction that can reduce their bill to zero. Feijóo later said his party would automatically and permanently adjust tax brackets.

Feijóo pledged that “any increase in the SMI will be exempt from income tax by law and automatically”. He also promised to raise average wages and restore talks with unions and business groups. He said housing had risen 33% more than average salaries and the shopping basket 44% more.

Joan-Francesc Pont Clemente, a financial and tax law professor at the University of Barcelona, said, “A person who only earns enough to satisfy their needs should not be taxed”. He added that protecting SMI-only earners from a tax bill already happens under the present deduction. A proposal to exempt the SMI regardless of a worker’s other income would go further, he said, and Feijóo had not defined his proposal clearly. Pont Clemente called the remarks possibly “a propagandistic message”.

Díaz said the SMI is not taxed and urged workers, pensioners, women and young people to “Take note” of the PP’s economic proposals. Saiz accused Feijóo of “extremely important technical ignorance” about how the threshold is taxed. The dispute reflects earlier tension between the Finance Ministry, when María Jesús Montero was its minister, and Díaz’s Labour Ministry.