Malta introduces progressive Parent Tax rates in 2026 Budget

Malta’s 2026 Budget introduces a change to the parental income tax system, marking a significant shift in the country’s family-focused fiscal strategy. Effective from 2026, parents will benefit from substantially higher tax-free thresholds, progressively rising over three years, giving households with children more financial breathing room.

Parent rates explained

The parent rate is a special income tax computation available to individuals with dependent children. It offers more favourable tax bands than the single rate and is designed to reduce the tax burden on working parents.

Before the reform in 2025

Prior to the 2026 changes, the tax-free threshold for the parent computation was €13,000, regardless of the number of children. Income above this threshold was taxed according to the following bands:

Under the previous system, the same tax bands applied to all parents regardless of family size, limiting the level of relief available to households with more than one child.

After the reform from 2026 to 2028

The reform significantly increases the tax free threshold and adjusts the lower bands over a three year period, with larger families benefitting the most.

Parent with one child

Key change: The tax-free threshold increases from €13,000 to €14,500, giving parents with one child additional relief at the lower end of the income scale.

Parent with two or more children

Parents with two or more children receive even greater relief. By 2028, the tax-free allowance rises to €30,000, providing substantial support to larger families.

Impact: Larger families benefit the most, as a significant portion of their income remains untaxed or taxed at lower rates, allowing parents to retain more disposable income.

Married rate

The married rate is a method of income-tax computation in Malta for couples filing jointly. It provides tax bands designed for married taxpayers, often offering lower tax compared to single rates. Its purpose is to reduce the overall tax burden on married couples.

Before the reform in 2025

After the reform from 2026 to 2028

From 2026, new rates apply differently based on the number of children a married couple has under their custody. This adjustment ensures that families with children benefit from higher tax-free income thresholds, easing the financial burden on households.

Married rate with one child

Key change: The tax-free threshold increases from €15,000 to €17,500, giving parents with one child additional relief at the lower end of the income scale

Married rate with two or more children

Key change: Families with two or more children enjoy a significantly higher tax-free allowance of €22,500, reflecting the government’s commitment to supporting larger families.
 

What this means in practice

The reform delivers progressive relief, offers the greatest benefit to larger families, and supports household stability. Parents and couples can still compare the parent, married, and single computations to identify the most advantageous option.

Our insight

While these measures provide welcome financial relief, their correct application depends on timely FS4 updates and careful interpretation. Concepts such as long term residence and custody may appear straightforward but can raise practical questions in real life scenarios, particularly where shared care or overseas work arrangements are involved. As guidance evolves through administrative practice and case law, employers and payroll teams must remain alert and responsive.

RSM Malta supports employers and individuals with tax planning, payroll implementation, and analysis of new fiscal measures. For those reviewing how these changes affect them or their organisation, our tax team can provide tailored guidance.
 

Article written by Timothy Zammit, Partner - Tax Advisory and Corporate