Salary arrears from court rulings are taxed in the year the resolution becomes final

The tax treatment of amounts received as salary arrears following a judicial resolution has been defined by the Dirección General de Tributos (DGT). This issue arises from uncertainty regarding the timing of when these earnings should be taxed and the possibility of applying specific tax benefits.

What the DGT has ruled

The DGT determines that employment income pending a judicial resolution must be attributed to the tax period in which the ruling becomes final. If these amounts are received in a period different from the one in which they were generated, the taxpayer must file a supplementary tax return, which will not be subject to penalties.

Regarding the 30% reduction for irregular receipt of income, the administration clarifies that this is applicable provided two conditions are met:

• The period during which the income was generated must be more than two years.
• The reduction must not have been applied in the previous five tax periods.

Finally, regarding legal costs, the compensation received is considered a capital gain, allowing for the deduction of expenses incurred during the judicial process.

What this means for you

If you are a worker who has obtained financial compensation through a court ruling, the time for your declaration is not when the right was generated, but when the resolution becomes final. This implies that the tax impact is shifted to the fiscal year in which the process legally concludes.

For those receiving accumulated amounts from several years, there is the possibility of reducing the taxable base through the irregularity reduction, provided that the time and frequency limits established in the IRPF regulations are respected.

What you should do

It is necessary to verify the exact date on which the ruling becomes final to determine the corresponding tax year for the declaration. In the event that the income was received in a fiscal year different from the year the ruling became final, a supplementary tax return must be filed to regularize the situation before the Administration without incurring penalties.