The Government's decision to raise the Minimum Interprofessional Wage (SMI) before the end of the year results in its tax exemption in personal income tax, an issue that has already generated repeated clashes between PSOE and Sumar this legislature and that must be undertaken through a legal reform that will have to be approved in the Permanent Deputation or already in 2027, in the new Congress that emerges from the elections on November 29.
The minimum wage, which has been revalued by 66% between 2018 and 2026, going from 735.90 euros to 1,221 euros per month, has two different parts regarding its processing. On the one hand, its revaluation, which depends on the Government after consulting the social agents and does not need validation in Congress.
And on the other, its exemption from personal income tax so that salary recipients are not harmed in the income tax return, a measure that does need to be endorsed in the Lower House to be updated and that during the legislature has caused clashes between the Ministry of Finance of the former vice president María Jesús Montero and the Ministry of Labor led by Yolanda Díaz.
The Government plans to raise the SMI before reaching the elections on November 29, but for the salary to be exempt from income tax, a legal reform must also be approved which, according to Treasury sources consulted by Europa Press, does not have a specific date. "That has to come after the SMI is raised," say Ministry sources.
HOW THE SMI IS RAISED
The increase in the minimum wage is approved by royal decree in the Council of Ministers, as established in article 27.1 of the Workers' Statute, that is, the measure is approved by the Government and is not sent to Congress to be validated.
To set what the new minimum wage will be, the Ministry of Labor usually obtains the opinion of an advisory committee of technical experts, in charge of issuing a recommendation report with the ideal range or percentage increase to guarantee the purchasing power of workers.
The deadline for experts to rule on the 2027 SMI is set for November 1 and, with its proposal, the Ministry of Labor will open the phase of social dialogue with the most representative trade union and business organizations to try to reach an agreement that will satisfy all parties.
Although this procedure is mandatory, the opinions or positions resulting from the negotiation table are not binding, so one of the negotiating parties may not agree with the proposed increase and still carry it out, which is what has happened almost every year with the employers' rejection of the Government's proposal.
In this way, although the Executive seeks to prioritize a tripartite agreement, it maintains intact its power to set the amount unilaterally if consensus is not achieved with the employers or the unions.
TAX ADJUSTMENTS TO INCREASES
Another derived issue is the taxation of that salary, which historically was a very low figure and was naturally below the minimum limits to start paying personal income tax, which in the General State Budgets (PGE) of 2018 extended until 2020 stood at 14,000 euros per year.
However, with the different increases approved in the eight years of Pedro Sánchez's Government, that exempt minimum fell short as of 2023, when the minimum wage already stood at 15,120 euros per year.
To adjust this gap, the Executive combined two regulatory avenues, on the one hand it raised the reduction for work income in the 2023 General State Budgets - the last approved and still in force - and on the other it adapted the Personal Income Tax Regulations to set the minimum exempt from withholding at 15,000 euros.
In practice, the personal income tax regulations regulate only the monthly advances that companies apply to workers, but the final tax obligation and the annual income declaration depend exclusively on the Personal Income Tax Law.
In this way, starting in 2024 and in the absence of new Budgets, it is no longer enough to simply reform the tax regulations, but to free the worker from withholdings, a legal change is required.
Thus, in that year of 2024, and after the initial reluctance of the Treasury, the Executive agreed to adjust the tax system so that SMI recipients did not pay personal income tax in the corresponding fiscal year: on the one hand, it updated the limit via royal decree to 15,876 euros per year - a figure that was then the minimum wage - and then, already in a decree law on measures against the crisis of the war in Ukraine, it approved tax deductions so as not to harm the recipients in the annual income declaration.
CHANGES IN A MOTOR LAW
In 2025, when the SMI stood at 16,576 euros gross per year, instead of resorting to a decree law that updated tax deductions, the Government took advantage of a foreign law being processed in Congress to introduce this reform via amendment, establishing tax deductions of up to 340 euros for recipients of salaries of up to 18,276 euros.
And in 2026, and with the minimum wage standing at 17,094 gross euros per year, the Executive introduced the fiscal adjustment to the minimum wage in a decree law that included aid for the storms that hit Andalusia and Extremadura at the beginning of the year, with Vox voting against and the support of the PP. On this occasion, the formula of introducing tax deductions of up to 590.89 euros per year was repeated when the full income from work was equal to or lower than this year's SMI.
At the moment, this fiscal recipe is the one that would be in force for 2027 while waiting for this coalition government, or the next one, to approve a new reform that fits the new increase in the minimum wage to personal income tax, and which would have to be sent to Congress for a vote.
