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V2389-14 11 September 2014 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimiento del trabajo

Refund of garnished wages is non-taxable; late payment interest is taxed as savings or general income depending on duration

A taxpayer inquired about the tax treatment of a refund of wages previously garnished by court order, including late payment interest. The DGT ruled that the principal amount is not taxable as it was already fully declared, whereas the late payment interest is treated as capital gains.

The question raised

In the event that, by virtue of a judicial ruling, the refund of the total amount of the garnished sums plus the respective late payment interest is ordered, how should the taxpayer proceed to declare the amounts that, if applicable, they might receive.

The DGT's ruling

The refund of garnished wages has no impact on Personal Income Tax (IRPF) if the taxpayer has already declared the full amount of the salary without deducting the garnishment. Late payment interest, being compensatory in nature, constitutes capital gains that are imputed when they are recognized. These interests are included in the savings tax base, unless they compensate for a period not exceeding one year, in which case they are taxed in the general tax base.

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