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V0107-14 20 January 2014 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Severance pay for objective dismissal is exempt up to the limit of unfair dismissal

A worker has enquired about the tax treatment of severance pay received following an objective dismissal. The DGT clarifies that the exempt portion is that which does not exceed the mandatory limits set by the Workers' Statute for unfair dismissal.

The question raised

Tax treatment under Personal Income Tax (IRPF) of the severance pay paid. Application of the exemption provided for in Article 7 e) of the Personal Income Tax Law.

The DGT's ruling

Severance pay for objective grounds (Art. 52 of the Workers' Statute) is exempt up to the amounts that do not exceed the limits for unfair dismissal. For contracts signed on or after February 12, 2012, the limit is 33 days of salary per year of service, with a maximum of 24 monthly payments. The excess over said limit is taxed as employment income, and the 40% reduction may be applied if the requirements of Article 18.2 of the Personal Income Tax Law are met.

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