The change in the IRS minimum subsistence mechanism, the level up to which income from employment is tax-exempt, could yield annual profits of €425 in 2023 and up to €500 in the following year, according to the proposed state budget. (OE) for 2023. Gross monthly salaries between the minimum wage, which will rise to €760 next year, and €1,000, will be the biggest beneficiaries. That is, according to statistics from the Tax Authorities, the measure should affect about three million employees.
“The reform of the minimum wage is the most emblematic measure of this budget, which is reflected in an important gain for those who are close to the minimum wage,” said Finance Minister Fernando Medina yesterday during the presentation of the proposal for the state budget for 2023. It took the government two and a half years to complete this measure, Dinheiro Vivo said given its complexity.
So how does minimum subsistence work from 2023? Until now, this level was applied after the IRS fees to ensure that at the time of the annual tax assessment the employee would have at least the same amount as the existing minimum or minimum wage: 9870 euros (705 euros x 14 months) this years and 10,640 euros (760 euros x 14 months) in 2023. The problem is that salaries just above the minimum wage and up to 1,000 euros were heavily penalized. In the government-provided examples, a salary of $10,555 in 2022, or $753.9 per month, when paying the IRS in 2023, would be just the minimum for this year: $9,870. To eliminate this tax distortion, the executive decided to apply the minimum amount upstream, before taxes. In other words, it is a discount or a new deduction that is added to the specific deduction of 4104 euros and that makes it possible to reduce the taxable income subject to IRS, which translates into income gains that end up being 425 euros per years can be.
“In 2023, the benefit per holder will be on average 195 euros per year, up to about 425 euros for the holders who are currently most affected”, that is, with a gross income between 11,220 euros per year or 801 euros per month and 13 thousand euros per year payments or 928 euros per month, according to the document. “As early as 2024, the average payment per holder will rise to about 230 euros per year and the maximum payment to about 500 euros per year,” according to the budget proposal. The renovation will be completed in two years. At that time, the annual payment can, for example, rise to 490 euros with a gross annual income of 11,456 euros or 818 euros per month.
In this way, the government is trying to compensate the workers as the update of the scales will be 5.1%, well below the executive’s inflation forecast for this year of 7.4%. Still, the proposal offers yet another tax relief by cutting the IRS’s second-tier marginal rate by two points from 23% to 21%. And as a result, the average rate is also low in the other levels.
When analyzing the simulations EY conducted for Dinheiro Vivo, changes in the IRS table, excluding the impact of the minimum living wage reform, could lead to fluctuations of more than 0.66% in the annual net income of families (see infographic above). For example, a single person without children, with a gross monthly income of one thousand euros, which has not been increased, will have an annual increase in his income of 79.19 euros (0.73%). A couple with two children, with a salary of 2500 euros per month, will receive an annual increase of 464.99 euros, 0.99% more compared to 2022. In the case of a single-parent family, with one child, with a salary of 1500 euros monthly profit will be 141.65 euros, an increase of 0.9%.
Also, the withholding tables will be changed, creating an intermediate rate, in order to apply a lower tax levy on the amount of the salary increase. Finance Minister Fernando Medina revealed that “the government will soon publish the new tables”. However, they did not come into effect until July 2023 and have no retroactive effect.
Social benefits rising
The Social Support Index (IAS), which serves as a reference for various social benefits such as unemployment benefits, child benefits or social integration income, rises from 35.5 euros to 478.7 euros, an increase of 8%, above the government’s inflation forecast of 7.4%. This is the biggest jump for this indicator since its inception in 2006.
With this increase, the minimum value of the unemployment benefit increases from 41 euros to 550.68 euros and the maximum from 88.75 euros to 1196.75 euros. The income brackets used to determine the value of child support also affect the increase in the IAS. For example, the first layer now covers income to EUR 3350.9 per year, an increase of EUR 248.5, the ceiling of the second layer increases by EUR 497 to EUR 6701.8 gross on an annual basis. This means that in relation to the most deprived families, these levels will cover more households, which enjoy a higher annual allowance, ranging from 149.85 euros to 41 euros.
“This index is the reference value for the calculation and determination of various social aids, such as child support, social inclusion benefit, social integration income”, or unemployment benefit, “which may have an impact on the 1.6 million beneficiaries With the 8% update, above expected inflation, greater social protection is guaranteed for those who need it most,” the state budget report said.
This evolution of the IAS also affects the update of pensions, as the rate of increase increases. For example, next year there will be more retirees who will receive the highest update, namely 4.53%. Until now, this level covered installments up to EUR 886 and now it is rising to EUR 957.4. The OE proposal confirms the reduction of the increases of pensioners who, instead of following the formula and increasing the reforms between 8% and 7.1%, will apply an update between 4.43% and 3.53%.
However, the finance minister, Fernando Medina, admitted corrections to these increases, with a value increase in 2023, if inflation rises above 7.4% this year, the expected value. “There will of course be a correction to this increase,” if the inflation that counts, the average inflation without housing, exceeds government estimates in November, Fernando Medina said. However, I would like to add that if this correction takes place, it will have a very limited effect.
The halving of the pension update, which will lead to future losses for retirees, taking into account that the calculation base will be lower from 2024, is a counterpart to the bonus of more half-pension that retirees will receive this month. income support measures to mitigate the negative effects of inflation.
Salomé Pinto is a journalist for Dinheiro Vivo
Source: DN
