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What is personal income tax and how does it affect workers and the self-employed

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What is personal income tax and how does it affect workers and the self-employed

Do you need to calculate the amount of personal income tax you have to pay? Or if otherwise you have to return? We will tell you how this tax works so that you have no doubts.

Table of Contents:

Definition of personal income tax
How does personal income tax affect a payroll?
How does personal income tax affect the self-employed?
The personal income tax or income tax of individuals is a tax paid by individuals who are resident in Spain or taxpayers of their income earned during a calendar year.

Personal Income Tax is the most important tax of the Tax Agency in Spain, due to its quantitative importance. It is based on the tax principles of progressivity, generality and economic capacity.

The scope of application of personal income tax is at the level of all the Autonomous Communities of Germany Phone Number List. Although it is partially assigned to the Autonomous Communities, which can establish the deductions that can be applied to the quota.

But do we know what personal income tax is actually? How is it applied to the payroll of employed workers? How do the self-employed apply personal income tax?

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What is personal income tax: the simplest definition
The definition of personal income tax is simple: it is money that the Tax Agency sets aside from our payroll or other income in anticipation of what will later be paid when filing the income statement. Therefore, it is an advance that all Spanish citizens make to the Treasury as a forecast.

With holdings are one of the formulas that the Government uses to finance itself. The Government requires this advance to ensure that everyone meets a part of their obligations.

Personal income tax payers are those individuals who have habitual residence in Forex Email List territory, or those individuals who have their habitual residence abroad with a diplomatic mission, consular offices and institutes abroad.

Depending on the with holdings that have been advanced, more or less will be paid in personal income tax. If it has been withheld too much, the Tax Agency will return the difference to us. In the opposite case, the taxpayer will have to pay what is missing to the Tax Agency. With with holdings, the Government ensures that part of what is owed has been paid once the time for settlement has arrived.

There are 3 components that are part of the income and that must be paid in personal income tax:

➡ Income: work income is considered to be those that have been obtained by our work as an employee or self-employed, the income from movable capital that has been obtained by assets, assets or rights not intended for an economic activity and the capital returns real estate from rustic and urban real estate or real rights over these properties not intended for economic activities.

➡ Capital gains or losses: when there is an alteration in the composition of the assets, variation in the value of the taxpayer’s assets or non-qualification of the income obtained as performance.

➡ Income allocations: are those incomes that are not received in the form of money but that should have been obtained. These income can be real estate, from transparent companies, international tax transparency or by the transfer of image rights.

How does personal income tax affect a payroll?
Companies are obliged to retain a percentage of their payroll from their employees based on the personal income tax table established by the Tax Agency available to workers. According to the gross salary and personal circumstances of each one , the personal income tax withholding will be different.

The companies then calculate the amount of the gross salary of each of the employees that has to be paid to the Treasury as personal income tax and it is deducted from each of the payrolls each month.

This can be done on a pro-rata basis between 12 or 14 payments or a lower percentage than that corresponding to the worker can be applied in the first months of the year and then it can be adjusted by increasing the final months of the year, or vice versa; hence the differences that may occur in withholdings.

To know if the worker is excluded from withholding, it is possible to find out when calculating the withholdings of the personal situation of each worker, according to the following table:

What is personal income tax and how does it affect workers and the self-employed – Irpf family situation min

If our salary were lower than the figures indicated in the table, we would not be obliged to withhold personal income tax from our payroll.

To calculate the personal maximum and minimum according to the personal income tax law, in general, the general minimum is 5,550 euros. For those over 65 years of age, 1,150 euros would be added to this amount and for those over 75 years old, 1,400 euros would be added to this amount.

Therefore, for a 38-year-old person who charges 20,000 euros, they would have:

What is personal income tax and how does it affect workers and the self-employed – income tax withholding 1 min

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Our personal minimum would be 5,550 euros, to which a 19% withholding would have to be applied, which is the first applicable tranche to know what amount we can deduct from the personal income tax tranches that are calculated below. Therefore, we can deduct 1,054.50 euros from our tranches.

The structure by sections of personal income tax would be for 2017:

What is personal income tax and how does it affect workers and the self-employed – irpf min tranches table

The minimum rate that is applied is 19% the minimum and 45% the maximum and will be applied by sections. That is, for a gross salary of 20,000 euros, the following would apply:

What is personal income tax and how does it affect workers and the self-employed – income tax withholding 2 min

To the first 12,450 euros, 19% would be applied with an amount withheld for personal income tax of 2,365.50 euros plus the 4,280 euros in the next tranche, which applies the 24% withholding with an income tax of 1,027.20 euros. Therefore, a total of 3,392.70 euros will be withheld from us.

In this way , the personal income tax that will be applied to us during the year will be the difference between the sections that we have applied to personal income tax of 3,392.70 euros and our minimum personal withholding of 1,054.50 euros, with a total amount of 2,338.20 euros and 11.69% of the gross amount of our salary, as can be seen in the following table:

What is personal income tax and how does it affect workers and the self-employed – personal income tax withholding min

Personal income tax calculator – Calculate how much you have to pay
If you want to see how the calculation is carried out in your payroll you can see it from this simulator:


How does personal income tax affect the self-employed?
As a self-employed worker, you also have to advance personal income tax . What happens is that you will not have to perform large calculations as is done in the payroll of employed workers.

A freelancer may have several clients with different incomes that are not always going to be fixed. This greatly complicates the calculations that must be carried out during the year. The Tax Agency’s solution is to establish fixed withholding tables depending on the activity.

The general withholding is 15% and each of the invoices made by the self-employed worker must be applied directly. For all other cases:

➡ Self-employed professionals: personal income tax withholding is 15%. Until 2016 this percentage was 19%. The withholding percentage will be subtracted from the gross amount to be invoiced, never from the net amount, which must also include VAT.

➡ Self-employed in modules: the percentage will be established by law and since 2016 the obligation to pay 1% for certain activities was eliminated and now all must pay 15%.

➡ Self-employed of livestock and agricultural activities: not all activities have the same type of withholding since the livestock activities of pig fattening and poultry farming are taxed at 1%, while agricultural activities and other livestock activities are taxed at 2% .

➡ Self-employed forestry activities: the self-employed who are engaged in carrying out this type of activity have to pay 2% tax.

➡ New self-employed: for registering the first year they become self-employed and the following 2, a retention of 7% instead of 15% may be applied. To be able to apply this reduced withholding it is necessary not to have carried out any economic activity during the previous 12 months. This reduction of withholding is not mandatory since each self-employed person can decide whether to apply it or not. Its greatest advantage is that it allows for greater liquidity at the beginning.

➡ Self-employed workers who should not apply personal income tax withholdings: these are non-professional entrepreneurs who are exempt from paying personal income tax. The Tax Agency considers as non-professional entrepreneurs those who carry out activities classified in the first section of the Activity Tax (IAE) rates.

What is personal income tax and how does it affect workers and the self-employed – R051 Helps and subsidies for entrepreneurs and self-employed people blog

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