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V1878-20 10 June 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Permanent disability compensation paid by employers is taxed as employment income and allows for a reduction

A hospitality worker enquired whether permanent total disability compensation paid by her employer under a collective agreement was exempt from Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that it is not exempt income, but it does allow for a reduction applicable to irregular income.

The question raised

Taxation of the compensation in Personal Income Tax (IRPF).

The DGT's ruling

The compensation is not exempt because it does not derive from civil liability or accident insurance, but rather from life and disability insurance. As it is paid directly by the company, it is classified as employment income. Therefore, the 30% reduction for income obtained in a notoriously irregular manner over time is applicable.

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