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V0322-21 23 February 2021 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos del trabajo

Back pay for professional career progression is taxed in the year of administrative recognition and may be subject to reductions

A doctor inquires about the taxation of several years of back pay related to professional career progression and late payment interest. The Directorate General for Taxes (DGT) rules that the back pay constitutes employment income due in the year of administrative recognition, while the interest constitutes capital gains.

The question raised

Temporal attribution of the aforementioned back pay.

The DGT's ruling

Back pay for professional career progression constitutes earned income that must be attributed to the tax period in which it becomes due, i.e., when the administrative resolution recognizes the right. As it covers more than two years but is taxed in a single fiscal year, the 30% reduction may apply if the legal requirements are met. Late payment interest, due to its compensatory nature, is taxed as capital gains in the fiscal year of its recognition. This interest must be included in the savings tax base.

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