Deduction of Personal Income Tax (IRPF) withholdings lower than required due to payer error

An error in the application of Personal Income Tax (IRPF) withholdings by the paying entity raises a recurring question: who should bear the difference in the tax liability? The Dirección General de Tributos (DGT) has clarified the possibility of correcting this situation in the income tax return.

What the DGT has ruled

The inquiry analyzes whether a taxpayer can deduct from their gross tax liability the amount that should have been withheld when the withholding actually applied was lower than required due to a cause attributable to the withholder. The criteria establish that, if the error is the responsibility of the person making the payment, the recipient has the right to deduct from their tax liability the amount that should legally have been withheld.

It is important to note that this possibility has a critical exception: it does not apply to legally established remunerations paid by the public sector. In the case of payments made by the Administration, the taxpayer can only deduct the amounts that have been effectively withheld, with no possibility of claiming the difference due to an administrative error.

What this means for you

If you are an employee and your company has applied a withholding lower than what was appropriate according to your tax situation, the regulations allow you to regularize that difference in your IRPF return. This prevents the payer's error from causing direct harm to the calculation of your final tax liability, provided it is not public sector remuneration.

This criterion is based on the IRPF Law and the General Tax Law, ensuring that the tax burden is adjusted to what must legally be withheld, regardless of the withholder's management.

What you should do

In a situation of insufficient withholdings, it is necessary to:

• Verify that the error in the withholding is attributable to the payer and not to an omission of data by the worker.
• Check if the remuneration comes from the public sector, as in that case the deduction is limited to what was effectively withheld.
• Assess the particular situation of your tax return to ensure that the deduction of the required amount is applied correctly.