This week marks a period of pay increases for approximately one million employees in the private sector, as the changes to the direct income tax brackets come fully into effect.

In practice, this means a reduction in monthly income tax withholding on wages, which results in a tangible increase in net earnings and an immediate benefit that will be felt directly in employees’ pockets. Public-sector employees have already seen these increases, as their salaries are paid in advance for the working month.

The tax reform submitted to Parliament by the Minister of National Economy and Finance, Kyriakos Pierrakakis, and the Deputy Minister in charge, Thanos Petralias, and passed last November, constitutes—according to ministry officials—the largest reduction in direct taxes since the restoration of democracy.

The adjustments to the tax brackets provide for reductions in income tax rates ranging from 2 to 8 percentage points for the vast majority of employees, while for large families the reductions in tax rates reach up to 22 percentage points. The extent of the reduction depends on three key factors: the level of taxable income, the number of dependent children, and the age of the employee.

Ministry officials note that the main beneficiaries of the new tax brackets are the middle class, families with children, and young workers.

Indicatively, the reform introduces zero taxation for young people up to the age of 25 and establishes a 9% tax rate for those up to the age of 30 on annual incomes of up to €20,000. In addition, zero taxation is provided for parents of large families with individual annual income of up to €20,000, and a reduction to 9% for parents with three children earning between €10,000 and €20,000 annually. Tax cuts are larger for middle and higher incomes, without excluding positive effects for lower-income brackets, which are also largely covered by the tax-free threshold.

Overall, approximately 4 million taxpayers benefit (public- and private-sector employees, pensioners, self-employed professionals, and farmers) who are currently subject to income tax based on their earnings. The fiscal cost is estimated at €1.2 billion in 2026, €1.6 billion in 2027, and €1.53 billion annually from 2028 onward.

In detail:

1. Tax rates for income between €10,000 and €40,000 are reduced by 2 percentage points, as follows:

• €10,000–€20,000: from 22% to 20%
• €20,000–€30,000: from 28% to 26%
• €30,000–€40,000: from 36% to 34%

2. A new intermediate tax rate of 39% is introduced for income between €40,000 and €60,000, while the 44% rate applies to income above €60,000.

Additional measures for families with children:

3. The €10,000–€20,000 tax rate, set at 20% for taxpayers without children, is further reduced depending on the number of dependent children, and even more so for families with three children:

• 18% with one dependent child
• 16% with two dependent children
• 9% with three dependent children

4. Tax rates for income from €0 to €20,000 are reduced to zero for taxpayers with four or more dependent children.

5. The €20,000–€30,000 rate (26% for taxpayers without children) is reduced by 2 percentage points for each dependent child:

• 24% with one child
• 22% with two children
• 20% with three children
• 18% with four children
• 16% with five children, and so on

Additional measures for young people:

6. For young people up to 25 years old, tax rates from €0 to €20,000 are reduced to zero.

7. For young people aged 26–30, the tax rate for income between €10,000 and €20,000 is set at 9%.

Indicative examples

Pay rises for young workers

1. A 25-year-old woman working in the services sector with a net monthly salary of €980 (annual taxable income €15,000) will now pay zero tax. From January, her salary will increase by €91, rising from €980 to €1,071 net (for 14 monthly payments). Her annual net benefit will amount to €1,283—approximately 1.3 extra salaries.
2. A 24-year-old private-sector IT employee with a net monthly salary of €1,250 will also pay zero tax. From January, he will receive a monthly increase of €177, raising his salary to €1,427. The annual tax reduction amounts to €2,483, equivalent to two additional monthly salaries.
3. A 29-year-old tourism-sector employee with a net salary of €1,500 will now be taxed at 9% instead of 22%. From January, his salary will rise to €1,600—an increase of €100 per month. Over 14 payments, the annual benefit will be €1,400, roughly equal to one additional salary.
4. A 28-year-old woman with one child working in the catering sector and earning €1,260 net per month will see an increase of €93 from January, bringing her salary to €1,353. Her annual benefit will be €1,300, equivalent to one extra salary.

Pay rises for employees with children

1. A private-sector employee with one child and a net monthly salary of €1,510 will receive a €43 monthly increase from January, raising his salary to €1,553. Total annual tax reduction: €600. If his spouse also works with similar earnings, the annual benefit doubles to €1,200.
2. A private-sector employee with two children and a net monthly salary of €1,526 will receive a €64 monthly increase, bringing his salary to €1,590. The total annual tax reduction is €900. If his spouse also works, the family’s total benefit will reach €1,800 annually (around €130 per month).
3. A public-sector employee with two children and a net salary of €1,780 will see a €75 monthly increase from January, or €900 annually. If his spouse is also a public-sector employee earning €1,488 net, her salary will rise by €50 to €1,538. Together, the couple will gain €125 per month or €1,500 annually.
4. A private-sector employee without children earning €1,251 net per month will receive a €200 annual increase from January. If the spouse also works with similar earnings, the annual benefit doubles to €400.

Pay rises for families with three or more children

1. A private-sector employee with three children earning €1,540 net per month will see a €121 monthly increase from January, raising his salary to €1,663. If his spouse earns €1,290 net, her salary will rise by €93 to €1,384. Overall, the couple will receive an additional €214 per month, or €3,000 annually.
2. A parent of a large family working in the private sector with a net salary of €1,809 will receive a €293 monthly increase from January, raising his salary to €2,102. The annual benefit will be €4,100. If his spouse works in the public sector with a net salary of €1,527, her pay will rise by €140 to €1,667. Together, the couple’s total monthly benefit will be €433, and the annual benefit €5,780.

Finally, self-employed individuals and farmers will see the benefit when they file their 2026 tax returns in March 2027.