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A taxpayer inquired whether the 40% tax reduction could be applied to the portion of a collective redundancy severance payment that exceeds the tax-exempt limit, and how to report this in Form 190. The Directorate General for Taxes (DGT) clarified that the excess is taxed as employment income and allows for the reduction provided that the generation period and amount limits are satisfied.
Question posed: Application of the 40 percent reduction provided for in Article 18.2 of the Personal Income Tax Law to the redundancy compensation received by the taxpayer when it has exceeded the legally established amount, and the obligation to reflect said reduction in Form 190.
The portion of the collective redundancy compensation that exceeds the limits established in the Workers' Statute shall be taxed as employment income. On said excess, the 40% reduction may be applied if the generation period exceeds two years and the amount limits of 300,000 euros per year are not exceeded. In the event of fractional payment, the reduction only applies if the quotient between the generation period and the fractional tax periods is greater than two. Regarding Form 190, the full amount, the reductions, and the withholdings must be reported.
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