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V1446-19 17 June 2019 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Unfair dismissal compensation is exempt up to the limits of the Workers' Statute or €180,000

A worker sought clarification regarding the tax treatment of compensation for unfair dismissal agreed upon during a conciliation hearing. The DGT clarifies that the exemption applies according to the limits set by the Workers' Statute, and any amount exceeding these limits is taxed as employment income.

The question raised

Tax treatment that, for the purposes of Personal Income Tax, must be applied to compensation for the termination of the employment relationship. Application of the exemption provided for in Article 7 e) of the Tax Law, and of the reduction provided for in Article 18.2 of the aforementioned legal text.

The DGT's ruling

Compensation for unfair dismissal is exempt in the amount that is the lesser of: the limit mandatorily established in the Workers' Statute or 180,000 euros. The excess over these limits is considered income from employment and may be subject to the 30% reduction provided for in Article 18.2 of the LIRPF. For the calculation of the exemption, the years of service actually rendered to the employer are computed, and not the seniority recognized by agreement or contract.

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