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V1836-25 13 October 2025 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Dismissance compensation not tax-exempt as income from work with 30% reduction

The consultant asks about the tax treatment of potentially improving an unjust dismissal payment through an agreement. Tax authorities respond that since the illegitimacy is not recognised in conciliation or judgment, the amount is not exempt and is taxed as income from work.

The question raised

Tax treatment in the Personal Income Tax of the possible improvement in severance pay.

The DGT's ruling

For the severance pay to be exempt, the recognition of unfair dismissal must occur during the conciliation process before the SMAC or through a judicial ruling. If these requirements are not met, the severance pay is subject to taxation and not exempt, being classified as income from employment. In this case, the 30 percent reduction provided for in Article 18.2 of the LIRPF could apply.

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