How Income Tax Works in Lithuania (2026): New 20%/25%/32% Scale and the NPD
Lithuania taxes employment income (gyventoju pajamu mokestis, GPM) at 20% on annual income up to 36 average wages (about EUR 83,237), a new 25% band from 36 to 60 average wages, and 32% above. The tax-exempt amount (NPD, up to EUR 747/month) reduces the base and tapers to zero as pay rises. Verify with VMI (vmi.lt).
The 2026 three-tier scale
For 2026 Lithuania introduced a middle income-tax band. GPM is now 20% on annual employment income up to 36 average wages (VDU), which is about EUR 83,237; 25% from 36 to 60 VDU (up to about EUR 138,729); and 32% above 60 VDU. The new 25% tier is the main 2026 change -- previously the scale jumped straight from 20% to 32%. For a typical salary well below EUR 6,900 per month, only the 20% rate applies. The rate is charged on the GPM base, which is gross salary minus the employee Sodra contribution and the tax-exempt amount (NPD).
The tax-exempt amount (NPD)
The neapmokestinamasis pajamu dydis (NPD) shelters part of low-to-mid income from tax. In 2026 the maximum monthly NPD is EUR 747 when monthly gross is at or below EUR 1,153 (the minimum wage). Above that, the NPD tapers: it is reduced by EUR 0.49 for every euro of gross above EUR 1,153, reaching zero at about EUR 2,677 per month. So higher earners get little or no NPD, and their effective tax rate rises toward the headline 20%. The NPD applies only to employment income and is built into monthly payroll withholding.
Worked example
Illustration only -- confirm with VMI. Monthly gross EUR 2,000, single employee: Sodra (19.5%): EUR 390.00 NPD: 747 - 0.49 x (2,000 - 1,153) = EUR 331.97 GPM base: 2,000 - 390 - 331.97 = EUR 1,278.03 GPM (20%): EUR 255.61 Net: 2,000 - 390 - 255.61 = approx. EUR 1,354.39 At EUR 4,000/month the NPD is zero (gross above EUR 2,677), so the GPM base is simply gross minus Sodra.
FAQ
What changed in Lithuania's income tax for 2026?
A new 25% band was added between the 20% and 32% rates. From 2026, 20% applies up to 36 average wages (about EUR 83,237/year), 25% from 36 to 60 average wages, and 32% above. Most employees remain in the 20% band. Confirm with VMI.
How does the NPD tax-exempt amount work?
It is a monthly allowance, up to EUR 747 in 2026, that reduces your taxable income. It is full at the minimum wage and tapers by EUR 0.49 per euro of gross above EUR 1,153, reaching zero at about EUR 2,677/month. Verify the current figures with VMI.
Is income tax charged on gross or after contributions?
After. The GPM base is gross minus the 19.5% employee Sodra contribution and the NPD, so income tax is calculated on a smaller figure than gross.
⚠️ Informational estimate, not tax advice. Payroll software may differ in edge cases. Verify with a professional.