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V0860-22 21 April 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Compensation for untaken rest periods is taxable as employment income

A worker from the Madrid Health Service inquired whether judicial compensation for not taking rest periods is exempt from Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that it does not qualify as an exemption for personal injury, but rather constitutes employment income.

The question raised

Taxation of the compensation under Personal Income Tax.

The DGT's ruling

Compensation for unused rest hours does not constitute an exemption for personal damages, as it compensates for economic losses and not physical or personal harm. Therefore, it must be taxed as employment income pursuant to Article 17.1 of the Personal Income Tax Law. Since it refers to a period of four years, the 30% reduction is applicable for having a generation period exceeding two years.

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