Minimum wage tax exemption

As per the Law No. 7349 on the Amendment of Some Laws and the Income Tax Law, the wages corresponding to the remaining amount after deducting the worker's social security institution premium and unemployment insurance premium from the monthly gross amount of the minimum wage valid in the month the payment is made, are exempted from income tax.

Distinguished Fortune readers, in this article, I would like to share with you my views on the exemption of wage income corresponding to the minimum wage from income tax.

The Income Tax Law defines wage as “benefits that can be represented by money, provided with money and in-kinds given to employees in exchange for service, subject to the employer and attached to a specific workplace. The same law stipulates that the wage being paid under the name of allowance, compensation, cash indemnity (financial liability indemnity), allocation, raise, advance, contribution, honorarium, premium, bonus, expense or other names does not change its quality; nor does being administered as a percentage of a certain income, as long as it is not a partnership. Accordingly, monthly wages, overtime, premiums, bonuses, expenses, and all other payments and benefits paid to service professionals will also be considered wages.

Therefore, in exempting the minimum wage in accordance with the Law No. 7349, calculations must be made by taking into account all payments that fall under the definition of wage. The gross minimum wage in 2022 has been determined as 5,004 TRY per month. Thus, 8,608.16 TRY calculated over the annual gross wages of those who earn the minimum wage or higher in 2022 will be exempted. In the taxation of wage income exceeding the exemption, the income tax bracket amounts and rates at which the tax will be calculated regarding the income of the service person in the relevant month will be determined by taking into account the amounts within the scope of the exemption. Due to the legal regulation, since the social security support premium deductions of retired employees are lower than those of regular employees, even if retired employees earn a monthly gross minimum wage of 5,004 TRY, they will have to pay 900.72 TRY more income tax than regular employees who receive the same wage.

In parallel with the exemption regulation in wages, the part of the documents related to wage payments corresponding to the monthly gross minimum wage is also exempted from stamp tax.

The aforementioned legal regulation also abolished the application of minimum living allowance.

In case of receiving wages from more than one employer, the exemption will apply only to the employer paying the highest wage. Therefore, it is important to inform the other employer about the wage that will not be exempted. Otherwise, if both employers implement said exemption, the situation might entail a penalty assessment. In the event that more than one employer pay the same amount, it will be the employee’s task to choose the employer who will implement the exemption. If one employer cannot benefit from the full scale of the exemption, the other employer will not be able to benefit from the remaining amount.

In the implementation of the Free Zones Law, the Technology Development Zones Law, and the Law on Supporting Research, Development and Design activities, the exemption corresponding to the minimum wage will be applied first, and in case of any remaining amount from the exemption, the incentives and exemptions specified in the relevant laws will be applied to the remaining amount.