Flexible remuneration in income tax returns

The flexible remuneration has positioned itself as a win-win solution: a model that not only improves the well-being of workers, but also offers tangible fiscal advantages. 

However, the impact of such a system on the Income Tax Return What items are exempt and how and where are they declared? Let's take a look at how flexible remuneration works from a tax perspective, addressing the main questions and practical advice on how to optimise their use and comply with tax obligations. 

What are Personal Income Tax and the Income Tax Return?

The Personal Income Tax (IRPF) is a direct tax levied on the income earned by individuals in a fiscal year in the territory where they reside. This tax is compulsory for most citizens and is intended to finance essential public services such as education, health, infrastructure and social security, and is a key element in sustaining the welfare state.  

The progressive nature of personal income tax means that people with higher incomes contribute a higher percentage, which ensures a more equitable distribution of the tax burden. In addition, the IRPF allows statutory deductions to be applied that can reduce the tax base, such as those related to flexible remuneration, investments or pension plans. 

The income tax return is an annual formality by means of which taxpayers report to the tax office on their income, deductible expenses and other tax circumstances during the tax year. 

This process makes it possible to calculate whether the withholdings made throughout the year coincide with the actual amount of personal income tax payable, determining whether the taxpayer must pay an additional amount or whether, on the contrary, he/she is entitled to a refund. The tax return is not only a legal requirement, but also a tool for adjust the tax burden according to the personal and economic situation of each citizen. 

How is flexible remuneration taxed in the income tax return?

One of the key aspects of flexible remuneration is understanding how it affects the IRPF and how this income is reflected in the annual tax return.  

It is important to note that amounts for exempted services, such as restaurant ticket, transport ticket o childcare vouchers, are not considered as part of the gross taxable salary., provided that the limits set by law are respected. 

In practical terms, it is not necessary to carry out any additional action in the Income Tax Return, as the Income from Work box automatically excludes the concepts exempt from Personal Income Tax that have been applied monthly to the payroll as part of the Flexible Remuneration.  

It is therefore essential that companies apply the exemptions correctly when calculating their employees' payrolls. Otherwise, there may be inconsistencies in the submission of the tax return. 

Legal aspects and the Flexible Remuneration Act

The law Law 35/2006 of 28 November y ehe Royal Decree 439/2007, of 30 March 2007 regulate flexible remuneration and establish the conditions and limits for these tax benefits to be applicable. Among the most relevant requirements are: 

• Voluntary nature: Participation in flexible remuneration schemes must be the employee's decision, and the company cannot impose its implementation.  

• Legal limitsEach benefit has a maximum limit to be considered exempt. In general, the money allocated to Flexible Remuneration cannot exceed 30% of the employee's gross salary..  

• Clear documentationThe company must clearly reflect flexible remuneration concepts in the payroll. This is crucial both for the employee and for the tax office in the event of a review. 

How much can you save on your tax return through flexible remuneration?

Thanks to the use of a flexible remuneration, If you are an employee, you can make significant savings on your tax return.  

For example, Maria, who lives far from her place of work and spends 1,980 euros a year on meals, could benefit from the Ticket Restaurant as part of their flexible remuneration.  

Without this system, the 396 euros corresponding to 20% of personal income tax would be deducted from his available salary, leaving him with 1,584 euros. However, by opting for flexible remuneration, this expense is exempt from personal income tax, allowing you to enjoy the full €1,980, increasing their annual disposable income by 396 euros.  

What are the tax advantages of flexible remuneration for tax purposes?

The tax advantages of flexible remuneration are significant. By reducing the taxable base of the salary subject to personal income tax, the employee can pay less tax and increase his or her purchasing power.  

On the other hand, businesses also benefit by implementing flexible remuneration schemes, because help retain talent and improve team engagement without increasing salary costs. 

If you want to know more about flexible remuneration, download our e-book!