Severance payments and IRPF taxation: what you need to know according to the DGT

CIM Tax & Legal has been cited again in elEconomista, where our Tax Director, Blanca Llopart, provides her analysis on the taxation of severance payments that exceed what is established in the Workers' Statute, in an article written by journalist Eva Díaz.

The General Directorate of Taxes (DGT) has clarified how severance payments that exceed the Workers' Statute are taxed. According to the queries issued on June 25, the portion of the compensation provided for by the Statute retains its exempt status from personal income tax (IRPF), within legal limits, up to 180,000 euros.

However, any additional compensation, whether agreed with the company or determined by a judge, must be taxed as employment income, meaning it will not be exempt from IRPF. This includes severance payments exceeding 33 days per year worked in cases of unfair dismissal, as well as additional compensation in situations of fundamental rights violations.

Blanca Llopart, Tax Director at CIM Tax & Legal, points out that: “Any severance payment agreed in addition to what is legally due will not be exempt and will be taxed as any other employment income, like any salary received”. In addition, employees with more than two years of service may benefit from the 30% reduction for irregular income, which mitigates the tax impact of receiving the severance in a single fiscal year.

The article also reminds the limits established by the Workers' Statute: 33 days per year worked for unfair dismissals, with a maximum of 24 months, 20 days per year worked for objective dismissals, and specific limits for collective dismissals. Old contracts or special agreements, especially for executives, may generate additional severance payments that are also taxed according to current regulations.

In short, the DGT confirms that excess severance payments are taxed under IRPF, while the legally required portion remains exempt. The 30% reduction for irregular income eases the tax burden for employees with sufficient seniority, providing clarity and legal certainty for both companies and employees.

We thank elEconomista and Eva Díaz for trusting the analysis of CIM Tax & Legal professionals. To explore the topic further, you can read the full article here.