Lithuania introduced a progressive personal income tax (GPM) system from 1 January 2026 — the most significant overhaul of the country’s tax structure in a decade. The Seimas approved three income tax brackets. What does this mean for every employed person? How much will you take home? Is it still worth working overtime? This guide covers everything you need to know about Lithuania’s 2026 income tax reform.
- 20% — standard GPM rate (applies to most employees).
- 32% — higher rate above ~€134,640/year threshold.
- Standard NPD — unchanged; phases out with higher income.
- Family NPD — new: up to +€200/month for families with children.
- Effective date: 1 January 2026.
- Reconciliation: annual tax declaration for 2026 income due by 1 May 2027.
What changed from 2026?
Until the end of 2025, Lithuania applied a largely flat 20% GPM rate. From 1 January 2026, after extensive Seimas debate, a progressive income tax structure took effect. Key changes:
- 3 income tax rates — depending on annual income level.
- Additional NPD for families — parents with children qualify for a higher tax-free allowance.
- All income types aggregated — salaries, individual activity income, cryptocurrency gains, and dividends are summed in the annual declaration.
- PSD contribution unchanged — the 6.98% compulsory health insurance contribution remains the same.
Three income tax brackets: amounts and thresholds
| Annual income threshold | GPM rate | Notes |
|---|---|---|
| Below NPD (up to ~€400 gross/month) | 0% (NPD) | Tax-free minimum |
| Above NPD up to ~€134,640/year | 20% | Standard rate — applies to most employed persons |
| Above ~€134,640/year | 32% | Progressive top rate — only on the excess |
In practice: Approximately 95% of Lithuanian employees earn below the higher-rate threshold (~€11,220 gross/month). The progressive rate mainly affects:
- High-earners (senior executives, IT specialists at market rates, etc.);
- Self-employed persons with high individual activity income;
- Business owners receiving significant dividends.
Tax-free allowance (NPD) in 2026
| NPD type | Monthly amount | Who qualifies |
|---|---|---|
| Standard NPD | ~€625 (minimum) — tapers with higher income | All employees |
| Additional family NPD | Up to +€200/month depending on number of children | Parents with 1+ children |
| Disability NPD | Increased allowance | Disability Group I–III |
How much will you actually take home in 2026?
Indicative net salary figures for an employee without children:
| Gross salary (€/month) | GPM (approx.) | Sodra (19.5%) | PSD (6.98%) | Net (approx.) |
|---|---|---|---|---|
| €1,245 (minimum wage) | ~€0–95 | ~€243 | ~€87 | ~€820–900 |
| €2,000 | ~€230 | ~€390 | ~€140 | ~€1,240 |
| €3,500 | ~€530 | ~€683 | ~€245 | ~€2,040 |
| €6,000 | ~€1,020 | ~€1,170 | ~€419 | ~€3,390 |
What this means for self-employed and individual activity workers
From 2026, individual activity income is counted in the same annual income pool as employment income:
- If you work both as an employee AND have individual activity, all income is combined.
- If the combined total exceeds ~€134,640/year, the excess is taxed at 32%.
- Individual activity expenses remain deductible (actual costs or standard 30% deduction).
- Consider whether a small partnership (Mažoji bendrija / MB) structure might be more tax-efficient for your situation.
How to declare 2026 income with VMI
- Automatic declaration — VMI prepares it for most employees. Check via VMI EDS.
- Deadline — 2026 income must be declared by 1 May 2027.
- Refunds — if overpaid during the year (e.g., changed jobs), VMI refunds the difference automatically.
- Family NPD — declare children in VMI EDS or inform your employer to apply the allowance monthly.
Frequently asked questions
Does the 32% rate apply to all high earners based on monthly salary?
No — the rate is calculated on annual income, not monthly. If you earn a lot in one month (e.g., a large bonus) but your annual total remains under the threshold, you will not pay the higher rate. The final reconciliation happens in the annual tax declaration.
Are bonuses and one-time payments subject to the progressive rate?
Yes — all taxable employment income is aggregated. If a bonus pushes your annual income above the threshold, only the portion exceeding the threshold is taxed at 32%.
Is it still worth working overtime or taking on extra work?
For most employees (those below the threshold): yes, there is no change. For higher earners close to the threshold, evaluate carefully — the 32% rate combined with social insurance contributions means the net benefit of extra income is reduced.