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V0644-20 31 March 2020 · 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 unfair dismissal limit and €180,000

A query was raised regarding the tax treatment of severance pay for objective dismissal, including its exemption, the irregularity reduction, and applicable withholdings. The DGT clarifies the exemption limits and the procedures for reclaiming undue withholdings.

The question raised

Inquiry regarding the tax treatment of the dismissal compensation paid. Application of the exemption regulated in Article 7 e) and the reduction provided for in Article 18.2 of Law 35/2006 on Personal Income Tax. Withholdings on account of Personal Income Tax.

The DGT's ruling

The compensation for objective dismissal is exempt in the amount that is the lesser between the limit for unfair dismissal (pursuant to the Workers' Statute) and 180,000 euros. The excess is considered earned income. For the 30% reduction due to irregularity, the generation period and the established amount limits must be met. If the withholdings are higher than those due, a rectification of the self-assessment may be requested or an economic-administrative claim may be filed.

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