Imputation of back pay for professional career recognition in Personal Income Tax

The tax treatment of back pay generated by the recognition of professional career levels or grades has been clarified by the Dirección General de Tributos (DGT). This issue is relevant for workers receiving retroactive amounts derived from administrative or judicial resolutions.

What the DGT has ruled

The DGT establishes that the temporal imputation of this back pay must be made in the tax period in which the administrative resolution recognizing the new professional career level or grade is issued. The basis for this criterion is that it is at that moment when the effective right to receive such amounts arises.

Furthermore, the inquiry addresses the possibility of applying the reduction provided for in Article 18.2 of the Personal Income Tax Law (LIRPF). If the earnings correspond to a generation period of more than two years and are imputed in a single tax year, they may benefit from this reduction, provided that the following requirements are met:

• Similar reductions must not have been applied in the previous five periods.
• The amount must not exceed 300,000 euros per year.

What it means for you

If you are a worker receiving a sum of money as back pay for a promotion or professional career recognition that has been delayed in its formalization, you should not declare those earnings in the years corresponding to the generation of the right, but rather in the year in which the resolution recognizing it is issued.

This distinction is fundamental for the correct settlement of Personal Income Tax (IRPF). Additionally, if the accumulated amount is significant and covers more than two years, there is the possibility of reducing the taxable base through the 30% reduction for employment income generated in periods of more than two years, which provides relief in the tax burden.

What you should do

It is necessary to verify the exact date of the administrative resolution that recognizes the right to the new professional level to determine the correct fiscal year. In the event that the amount is high, it should be checked whether the temporal and economic limits for applying the reduction under Article 18.2 of the LIRPF are met. Given the complexity of the regulations, it is recommended to assess each particular situation to ensure compliance with current legislation.