The government said Tuesday has finalized a major tax reform that will see thousands of pensioners benefit from expanded tax exemptions on both their pensions and additional income. This marks the completion of a multi-year process that began in 2022, designed to ensure that retirees are not unfairly penalized by high tax brackets when they have more than one source of revenue.
Under the newly fully-implemented measures, pensions are now effectively exempt from tax and are no longer bundled with other income for tax calculation purposes. This decoupling means that additional income is now taxed independently at standard rates rather than being pushed into higher brackets. The change is a significant shift from previous years where many pensioners found themselves facing a 25% tax rate once their pension and side earnings were combined.
The thresholds for tax-free other income have been set at €12,000 for individuals on a single computation and €15,000 for those using a married computation. When these figures are added to the pension exemption, which now covers up to double the maximum social security pension-approximately €37,104-the total tax-free income for many seniors becomes quite substantial. This is particularly beneficial for those with service pensions, private pensions, or those who received top-ups for postponing their retirement.
Government estimates suggest that this final phase of the exemption will return approximately €25 million annually to the pockets of 16,000 seniors. For many working pensioners, this transition represents an annual saving of roughly €3,000. These measures are part of a broader strategy that has seen eleven pension increases in recent years, with the government aiming to support the elderly population against international economic challenges. By removing the tax burden from the pension itself, the reform allows retirees to supplement their income or remain in the workforce without the fear of losing a large portion of their earnings to the taxman.