Hacienda to Withhold Up to 591 Euros from SMI-Level Salaries. Starting in 2026, employees earning the SMI will see monthly withholdings on their payslips, even without a formal obligation to file a tax return. These sums can only be reclaimed by completing the Renta process.
In 2026, Spain will introduce a new tax scheme for employees earning the salario mínimo interprofesional (SMI). Now, even those who make €1,221 per month with 14 payments will face regular payroll deductions — around €43 each month. Officially, the government promises that such incomes are not subject to IRPF, but in practice, Hacienda will withhold tax from every payment.
How the withholdings work
The core change is that the minimum tax-exempt income has not been increased; instead, a special tax deduction has been introduced. According to Talent24h, the withholdings will amount to about €523 per year, or €43 per month. These sums are not lost permanently: employees can reclaim them when filing an income tax return, using a new deduction of €590.89.
However, this brings a key nuance. At this income level, filing a tax return is not mandatory, and some workers may simply not exercise their right to a refund. This creates a risk that withheld funds will stay in the budget if the person does not file a return.
How the deduction works
The €590.89 deduction is intended to offset withholdings and effectively bring the tax rate down to zero for salaries up to €20,000 per year. Authorities call this “reducing the tax burden to €591” for eligible workers. As a result, if the return is filed, the final tax burden can indeed be reduced to zero.
Key parameters of the changes:
- SMI in 2026 — €1,221 per month (14 payments)
- Annual income — €17,094
- Annual withholdings — 523 euros
- Deduction — 590.89 euros
Thus, a refund is only possible if the declaration is filed independently. For many, this will become a new responsibility, even though it is not formally required by law.
Criticism and concerns
Tax experts and union representatives have mixed views on the new scheme. Many believe it would be more logical to simply raise the non-taxable minimum to the SMI level to avoid unnecessary bureaucracy and the risk of low-income workers losing money. Employers point to a decrease in budget revenues, while unions worry the system will confuse people with low financial literacy.
Women over 35 with permanent contracts in the services sector—retail and hospitality—living in regions like the Canary Islands, Extremadura, Murcia, and Andalusia are considered particularly vulnerable. For them, the risk of not filing for a refund is especially high.
Context and government stance
The government explains the new measure as an effort to smooth out abrupt increases in tax burden resulting from small salary raises. In recent years, the approach to SMI taxation has already changed, and the current measure is a continuation of this policy. It is important to note that the Supreme Court recently confirmed Hacienda's right to determine the tax base for a number of operations, highlighting the broad powers of the tax authority.
Questions about the return and loss of social benefits in Spain have repeatedly been the subject of discussion. For example, recently a court in Madrid upheld the requirement to return the Ingreso Mínimo Vital after receiving an inheritance — more details about this case can be found in the article about the termination of social benefits due to inheritance.
