SERVICES
Pay and Benefits
Contract Renewals and Night Work: 5% and 15% Tax on Pay Increases in 2026
Revenue Agency
In the circular under review, the Revenue Agency provides operational guidance on the tax changes introduced for 2026 regarding pay increases arising from contract renewals and supplements for night work, work on public holidays, and shift work.
With regard to increases arising from collective agreement renewals signed between 2024 and 2026, increments paid solely in the year 2026 to private sector workers whose 2025 income did not exceed €33,000 are subject, unless the worker opts out in writing, to a substitute tax of 5%. The benefit applies exclusively to increases forming part of direct remuneration (regular and additional monthly pay) and, for the employer’s portion, indirectly linked components; excluded, among other things, are seniority increments, one-off payments, and severance pay (TFR).
For the same year 2026, a substitute tax of 15% is also provided, up to an annual ceiling of €1,500, on supplements and allowances for night work, work on public holidays, weekly rest days, and shift work, where provided for by the collective agreement. The measure applies to private sector workers whose 2025 income did not exceed €40,000 and is excluded for items that replace ordinary pay.
In both cases, the employer applies the tax automatically, unless the worker expressly opts out, with the possibility of a year-end adjustment in the tax return.