Salary arrears from judicial rulings are taxable when the resolution becomes final

The determination of the exact moment when amounts received as salary arrears must be taxed has raised various doubts in the field of personal income management. Following a recent binding ruling, the criteria for temporal imputation for these earnings from employment have been clarified.

What the DGT has ruled

The Dirección General de Tributos (DGT) establishes that earnings from employment, where the amount or the right to perception is pending a judicial resolution, must be imputed to the tax period in which the resolution becomes final. Following this criterion, if the resolution is consolidated during the current year, the tax obligation is generated in the corresponding tax year.

Likewise, the ruling addresses the application of the 30% reduction provided for in the regulations for earnings generated over periods exceeding two years. For this benefit to be applicable, two concurrent requirements must be met:

• The arrears must cover a time span of more than two years.
• Said reduction must not have been applied in the previous five tax periods for other earnings of a similar nature.

What it means for you

If you are a worker who has obtained recognition of salary differences through a judicial ruling, the moment of your declaration is not when the money is effectively received, but rather the moment when the ruling can no longer be appealed (finality). This determines the fiscal year in which you must include these amounts in your Personal Income Tax (IRPF) taxable base.

The correct application of the reduction for generation periods is fundamental to avoid errors in the tax settlement. It is not enough for the arrears to cover more than two years; it is necessary to verify that this same tax benefit has not been used in the last five years for similar arrears concepts.

What you should do

Upon receiving an amount for salary arrears derived from a judicial process, it is necessary to:

• Verify the exact date on which the judicial resolution becomes final to determine the correct fiscal year.
• Check the time period covered by the amounts received to evaluate the possibility of applying the 30% reduction.
• Analyze the background of tax returns from previous years to ensure that the right to the reduction for generation periods has not been exhausted.