Tax treatment of unpaid wages: imputation and applicable withholding

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the taxation of wages that, for various reasons, were not paid at the time and are received late. This resolution addresses two fundamental aspects: the timing at which these earnings must be declared and the withholding rate that must be applied when making the payment.

What the DGT has ruled

The inquiry focuses on determining the tax treatment of overdue and owed wages that are collected in a tax year different from the one to which they belonged. The body has established that these earnings must be imputed to the tax period in which they were due, and not to the year in which the actual collection or the final judicial ruling occurs.

In this sense, the DGT points out that if the right to the salary was already determined and only the payment was missing, the tax obligation arises when the salary is due. Likewise, it has clarified that when these arrears are received in a tax year different from the year they were due, the applicable withholding on such amounts is 15%, in accordance with the provisions of the IRPF Regulations.

What this means for you

This criterion has direct implications for workers receiving back pay:

• Temporal imputation: You cannot declare the wages in the year you receive the money in your account, but rather in the tax year in which the salary should have been paid.
• Withholding rate: The payment of these arrears will be accompanied by a 15% withholding, according to the current regulations for these cases.
• Difference from court rulings: The rule of imputing to the year of the final judicial ruling is not applicable if the right and the amount were already determined and there was only an outstanding debt pending payment.

What you should do

Upon receiving payments for wages from previous years, it is necessary to verify the due date of those amounts. Since the imputation must be made in the corresponding tax year and not in the year of collection, it is fundamental to analyze each taxpayer's fiscal situation to ensure compliance with IRPF regulations. It is recommended to assess each particular case to determine the correct declaration of these earnings.