The Congress of Deputies approved the decree-law on 18 March, providing aid for storm-affected areas in Andalusia and Extremadura – also confirming an income tax break for those earning the minimum wage (SMI), set at €1,221 gross over 14 payments in 2026.
Royal Decree-Law 5/2026, approved by the Government on 20 February, secured parliamentary backing with the only opposing vote coming from Vox. Alongside storm-related measures, it updates the income tax reduction for employment income, introducing a tax relief of up to €591 for those earning under €20,000 a year.
The full deduction of €590.89 applies to incomes at or below the annual SMI of €17,094, tapering off gradually until it disappears at €20,048.45. Throughout 2026, workers will continue to see standard withholdings on their payslips; the adjustment will be applied when filing their tax return.
According to Treasury estimates, a minimum-wage earner will pay €365 less in income tax than in 2025, with cumulative savings from successive minimum wage increases reaching €11 billion for low-income taxpayers.
How does this deduction work on the tax return?
When filing your 2026 tax return, you can apply this deduction if your total employment income does not exceed €20,048.45 and you have no other non-exempt income above €6,500.
The amount is deducted from the net tax liability after applying the international double taxation relief set out in Article 80. However, it cannot exceed the proportional share of the combined state and regional tax due that corresponds to the employment income used to calculate the taxable base.
The measure targets low and lower-middle-income workers – particularly those who are experiencing the impact of the minimum wage increase on their pay packets. If you meet the requirements, some or all of the tax already withheld may be offset.
As well as supporting minimum-wage earners, the deduction's structure avoids one of the common issues in income tax – sharp increases in taxation when crossing specific income thresholds.
What happens if my earnings from work exceed the minimum wage?
As income approaches €20,048.45 per year, the deduction is gradually reduced until it disappears. Specifically, it falls by €0.20 for every additional euro earned above the minimum wage. This approach avoids sudden changes – ensuring that earning slightly more does not mean losing the entire tax benefit. Its legal formula reflects this progressive reduction.
Deduction = €590.89 − 0.2 × (gross income − €17,094)
What happens if, in addition to the minimum wage, I receive other income or have multiple employers?
Overtime or certain bonuses do not automatically exclude you from claiming the deduction. What matters is your total annual income – if it remains below €20,048.45, you may still qualify.
It is also important to consider other sources of income. If your non-employment income, such as rental earnings or investment returns, exceeds €6,500, you will lose eligibility for the deduction.
Having more than one employer does not prevent you from benefiting, although it may affect the amount withheld during the year. For this reason, it is advisable to review your tax details carefully before submitting your return.
