Employer newborn bonuses in Lithuania could become tax-exempt: Seimas member Gintarė Skaistė has proposed an amendment to the Personal Income Tax (GPM) Act that would exempt employer-paid newborn bonuses from both GPM and social insurance (Sodra) contributions, up to 3 average monthly salaries (VDU). Currently these bonuses are taxed as ordinary employment income — even though employer death benefits are already tax-exempt under the same law.
- Proposal: exempt employer newborn bonuses from GPM and Sodra
- Cap: up to 3 VDU (average monthly salaries)
- Current situation: bonuses taxed as regular employment income
- Analogy in law: employer death benefits already tax-exempt (up to 3 VDU)
- Budget cost: ~€1.9 million per year
- Status: proposal submitted, under consideration in the Seimas
What is the current situation?
At present, when an employer pays a one-off bonus to an employee on the birth of a child, that amount is taxed in full as regular employment income — GPM is deducted and Sodra contributions apply. For the employer, this means higher costs; for the employee, only a portion of the intended amount actually lands in their pocket.
Yet the law already contains a precedent: one-off employer payments made on the death of an employee or their family member are tax-exempt up to 3 VDU. G. Skaistė’s proposal applies exactly the same logic to the birth of a child — an equally significant life event that the tax system currently treats very differently.
What the amendment would change
The proposed GPM Act amendment would:
- Exempt from GPM employer-paid one-off bonuses on the birth of an employee’s child
- Exempt from Sodra — both the employer and employee contribution portions
- Cap: the tax-exempt amount would not exceed 3 VDU
- Any amount above the cap would continue to be taxed in the normal way
In practice, employers could give employees a meaningful bonus on the birth of a child — up to three average monthly salaries — with no tax consequences for either party.
Why is this being proposed now?
The proposal is driven by concern about Lithuania’s declining birth rate. G. Skaistė argues that the state should make it easier for employers to support employees when children are born, and that the current tax treatment is an unnecessary barrier to doing so.
The logic is straightforward: if an employer wants to congratulate an employee on a new child and pay them a bonus, part of that sum currently goes to taxes. The same payment on the death of an employee is already tax-free. This asymmetry — taxing births more harshly than deaths — is hard to justify from a family support perspective.
The estimated fiscal impact, according to the proposal’s authors: if around 25% of employers paid a bonus of 1 VDU, the annual revenue cost to the budget would be approximately €1.9 million — a modest sum relative to the potential social and demographic benefit.
What this would mean for employers
Right now, an employer who wants to give an employee €1,000 net on the birth of a child must factor in the tax burden — the actual employer cost is higher due to Sodra employer contributions, and the employee receives less than the intended amount after GPM and their Sodra share are deducted.
Under the proposed amendment (assuming the amount stays within 3 VDU): the employee would receive the full amount with nothing deducted, while the employer would not include the sum in the taxable payroll and would not pay Sodra on it. Both parties benefit from simpler accounting and greater effective value.
Where is the proposal in the legislative process?
The amendment has been submitted as a draft law to the Seimas. It has been referred to parliamentary committees for review. Before becoming law it must pass committee review, plenary reading, and a vote in the Seimas.
Practical example: what the amendment would mean in practice
Suppose company “Saule UAB” wants to congratulate employee Jonas on the birth of his child and pay him a €2,000 bonus. Currently: Jonas receives €2,000 minus GPM and Sodra employee contribution — the net amount is considerably lower. The employer also pays Sodra on top.
Under the proposed amendment (assuming €2,000 is within 3 VDU): Jonas receives the full €2,000 with no deductions, and Saule UAB does not include this amount in the taxable payroll and pays no Sodra on it. Both sides benefit from simpler accounting and a larger effective payment.
How should employers prepare?
- Monitor the Seimas legislative information system (TEIS) and track the amendment’s progress
- Consult a tax adviser on current treatment of newborn bonuses and how to handle the transition if the law passes
- Consider including birth bonus provisions in employment contracts or collective agreements — so the new rules can be applied quickly once the amendment enters force
- Do not announce or advertise a tax-exempt newborn bonus until the law is formally passed — early application carries tax risk
Frequently asked questions
Is this already in force?
No. This is a draft amendment submitted to the Seimas for consideration. Until it is voted into law and officially published, the current tax rules apply.
How large can a tax-exempt newborn bonus be?
Under the proposal, the tax-exempt amount would not exceed 3 VDU (three average monthly salaries). Any amount above that threshold would be taxed in the usual way.
Does the exemption cover adoptive parents too?
The proposal refers to “the birth of a child”. The exact conditions — including adoption — will be clear in the final legal text. Follow developments when the amendment is passed for precise details.
Are employers required to pay this bonus?
No. An employer newborn bonus is entirely voluntary. This amendment would only remove the tax barrier for employers who want to pay one — it does not create an obligation.
Is there a precedent for this exemption?
Yes — employer death benefit payments (up to 3 VDU) are already exempt from GPM. G. Skaistė’s proposal applies the same logic to newborn bonuses, ending an asymmetry in the law that is difficult to justify.