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The DGT confirms that only moral damages are exempt from IRPF, while lost earnings are classified as work income.
Question raised: Taxation under Personal Income Tax.
The exemption for civil liability regarding personal damages (physical, psychological, or moral) does not apply to compensation for material damages or economic losses such as lost wages. The latter are taxed as income from employment in the period in which the judgment becomes final. As income generated over more than two years is imputed to a single period, the 30% reduction provided for in Article 18.2 of Law 35/2006 is applicable.
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