Severance pay for unfair dismissal will be taxed in the tax year the agreement becomes final

Determining the fiscal year in which severance pay must be declared is a critical point for the correct fulfillment of workers' tax obligations. Recently, the Dirección General de Tributos (DGT) has specified the exact moment when this income must be imputed to Personal Income Tax (IRPF).

What the DGT has ruled

The inquiry addresses the temporal imputation of severance pay for unfair dismissal that is recognized and paid at a specific time. The criteria establish that the imputation must be made in the tax period in which the right to receive said amount becomes final, whether by judicial resolution or by a settlement agreement.

Regarding the tax treatment of the amount, current regulations establish that severance pay for unfair dismissal is exempt up to the limit of the amount established in the Workers' Statute or 180,000 euros, always applying whichever figure is lower. Any excess over these limits will be taxed as employment income. Likewise, it is noted that a 30% reduction may be applied if the period during which said income was generated exceeds two years.

What it means for you

For the worker, this criterion eliminates ambiguity regarding whether the severance pay should be declared in the year the money is received or in the year the dismissal occurs. The key lies in the finality of the right. If the severance pay comes from a judicial process or an agreement, the applicable fiscal year will be the one in which said right becomes legally consolidated.

This aspect is fundamental to avoid errors in the income tax return, especially when payments occur in fiscal years different from that of the resolution of the labor dispute.

What you should do

It is necessary to analyze the exact date on which the agreement or the judicial sentence becomes final to determine the correct fiscal year. The exempt amount according to the Workers' Statute must be verified to correctly calculate the portion that will be taxed as employment income, and it must be checked whether the requirements for the 30% reduction for generation periods exceeding two years are met. Each dismissal situation and its subsequent resolution must be assessed individually.