IRPF and Flexible Remuneration: How to calculate payroll savings?

Personal Income Tax (IRPF) is a tax levied on employees' income, withheld directly from their paychecks. Its purpose is to advance part of the annual tax payment, thus preventing taxpayers from having to pay the full amount in their paychecks. tax return. 

The calculation of personal income tax in the payroll is not uniform for all workers, as it depends on several factors, The tax withholding tax, such as salary, family situation, type of contract and applicable deductions. Knowing how this withholding is calculated and how it affects the flexible remuneration - both payroll and the tax return - is essential to understand the net amount you receive each month and to better plan your tax obligations. 

What is personal income tax in the payroll?

The personal income tax on the payroll is the percentage of gross salary deducted monthly by the company from the employee's salary to be paid directly to the tax authorities. This withholding tax acts as an advance on the income tax that is paid annually in the income tax return.  

The amount withheld will depend on a number of factors and at the end of the tax year, the taxpayer may receive a refund if more than the right amount has been withheld or will have to pay the difference if insufficient withholding has been made. 

Factors influencing personal income tax withholding in the paycheck

Personal income tax withholdings depend on the following: 

• Gross annual salaryThe higher the salary, the higher the withholding percentage (more details in the withholding table). 

• Personal and family situationIf the worker has children, is married or has a disability, this is taken into account. 

• Worker's place of residenceSome autonomous communities have their own tax regulations that may affect the withholding percentage. 

• Employment contractIf it is temporary or indefinite. 

• Deductions and exemptionsThere is income exempt from personal income tax in the payroll, such as money from the payroll that is used for flexible remuneration. 

Personal income tax withholding table

The personal income tax withholding system in Spain is progressive, which means that the percentage applied increases as the annual gross income is higher. This means that not all income is taxed at the same rate, but is divided into different brackets, each with a corresponding percentage. 

The following shows the table of personal income tax withholdings for 2024, where you can see the different income ranges and the percentages applied to each one: 

Minimum and maximum payroll deductions

• Minimum personal income tax in payrollThe minimum withholding tax is 2% in the case of temporary contracts.  

• Maximum personal income tax on payrollMaximum retention can go up to 47% at high incomes.

Who is exempt from personal income tax on their salary?

There are certain annual income limits below which workers are exempted from personal income tax withholding. These limits vary according to the worker's personal and family situation:  

Flexible remuneration and its impact on the personal income tax (IRPF) of the paycheck

The flexible remuneration is an option that allows workers to spend part of their salary on products or services that are exempt from personal income tax, which reduces the taxable amount and, consequently, the payroll deduction.  

Some of the most common benefits that can be included in flexible remuneration are: 

• Restaurant ticket 

• Transport ticket 

• Health insurance 

• Childcare voucher  

• Training  

By opting for flexible remuneration, the employee can optimise your take-home pay, as part of your income will not be subject to personal income tax withholding. However, it is important to consider that these benefits have a maximum exemption limit and must be managed through the company.