B Law & Tax
13 February 2024

Tax Advisor: Changes in the Personal Income Tax (IRPF) Regulation

The Royal Decree 142/2024, issued on February 6th and published in the Official State Gazette on February 7th, comes into effect on February 8th and modifies the Regulation of the Personal Income Tax (IRPF), approved by Royal Decree 439/2007, regarding withholdings and advance payments.

Below, we highlight the changes introduced regarding withholdings and advance payments:

1. The monetary limit excluding the obligation to withhold, according to article 81.1 of the IRPF

 is adjusted to ensure that workers receiving the minimum interprofessional salary are not subject to withholdings or advance payments. The new amounts of work income from which withholding or advance payment applies are specified, considering the number of children and other dependents, as well as the taxpayer’s situation.

The amounts in force until February 7, 2024, and the new amounts established by Royal Decree 142/2024, effective from February 8, 2024, are presented below.

2. The basis for determining the withholding tax rate is established through new reductions for net employment income below 19,747.5 euros, according to Article 83.3, d) of the IRPF Regulation.

When the net employment income is less than 19,747.5 euros, the following reductions will be applied to the total amount of cash and in-kind remunerations:

– If the net employment income is equal to or less than 14,852 euros, an annual reduction of 7,302 euros will be applied.

– If the net employment income is between 14,852 euros and 17,673.52 euros, the reduction will be 7,302 euros minus the result of multiplying 1.75 by the difference between the employment income and 14,852 euros annually.

– For net employment incomes between 17,673.52 euros and 19,747.5 euros, the reduction will be 2,364.34 euros minus the result of multiplying 1.14 by the difference between the employment income and 17,673.52 euros annually.

These measures ensure that the minimum interprofessional salary is not subject to withholding tax and avoid errors when adjusting salaries close to this minimum, applying an improvement in the corresponding reduction.

Transitional regime: temporary impact of the new regulations

A twenty-first transitional provision is introduced in the IRPF Regulation to clarify the temporary effects of the new regulations and simplify administrative burdens. This provision establishes that:

– Employment income paid before February 8, 2024, will be governed by the amounts and reductions in force until December 31, 2023, to determine the withholding tax rate or advance payment in the 2024 tax year.

– From February 8, 2024, the new wording of the IRPF Regulation will be applied to calculate the withholding tax rate or advance payment on employment income. The withholding tax rate will be adjusted in the first payments of employment income made after that date. However, the payer may choose to make this adjustment in the first payments from March onwards, using the provisions in force until December 31, 2023, to calculate the withholding tax rate on income paid before that date.

Examples of beneficiaries of this reduction

The reduction of withholdings in the IRPF, recently approved, benefits various groups of workers and pensioners. To exemplify its impact, the Government has provided specific cases:

1. A person receiving the minimum interprofessional salary (SMI) will experience a significant reduction in their IRPF withholdings. For example, someone earning the SMI of 2024, 15,876 euros per year, will go from a 7% withholding in 2018 to no withholding in 2024, representing a saving of 1,111 euros.

2. An employee with an annual salary of 18,502 euros, the most common according to the INE, will see a similar decrease in their withholdings. In 2018, they had a withholding of 2,000 euros, which was reduced to 1,328 euros in 2023 and will be 1,128 euros in 2024.

3. A married worker with two children and an annual salary of 20,000 euros will experience a reduction in their IRPF withholdings. In 2018, they paid 1,852 euros in withholdings, which were reduced to 1,429 euros in 2023 and will now be 1,346 euros in 2024.

The decrease in IRPF withholdings also benefits pensioners. For example, a retiree aged between 65 and 75 with a pension of 1,214 euros per month (17,000 euros per year) will see a significant reduction in their IRPF withholdings, going from 1,462 euros in 2018 to just 224 euros in 2024, representing an 85% decrease compared to 2018.

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