Potential tax problems for ERTE employees

On top of the months of delay that employees have suffered before receiving their ERTE payments, it is now apparent that some employees are going to have a tax problem.

Normally, employees pay tax (IRPF) on their income by deduction from their salary (retenciones). This system is similar to the PAYE systems that exist in other countries, but there are defects in the Spanish system .

One of the defects is that the entity that is paying the ERTE benefits, the Servicio Público de Empleo Estatal (SEPE), does not withhold tax from its payments. Despite this, SEPE is regarded by tax regulations as any other employer and so, whether a person returns to work or net, the employee will have had two ’employers’ during 2020.

ERTE income is treated as any other kind of earned income and is not exempt from income tax. This means that an employee may have to set aside funds to pay a tax bill next June when the income tax filing for 2021 is required.

A second problem is that a person does not have to file a tax declaration if they have earned less than 22.000€ in a year, as long as the person has only had one employer. If a person has had two employers then the exemption goes down to 14.000€.

So, because SEPE is considered as another employer, a person who has received ERTE payments will have to file a tax return for 2021 if total earnings exceed 14.000€.

To give some idea of how much tax might be payable here is a typical case:

Individual earns 23.600€ in 2020, including ERTE payments for April to June. Income tax payable in June 2021 would be approximately 1.300€.

Note that this is just an example and individual circumstances, extra allowance for children etc., will change the outcome.

Solution

Assuming a person restarts work then the simplest thing to do is request your employer to calculate the tax withholding percentage applied to monthly salary payments, taking account of ERTE amounts received. By doing this an unexpected tax bill will not arise.

It is important to note that tax regulations prevent an employer from doing this without a request from the employee. Also, many employers will not be aware of the problem and will not alert their employees.

Spence Clarke & Co specialises in the provision of Spanish tax, legal, audit and accountancy services, mainly to foreigners with interests in Spain. Our cross-border knowledge helps clients adapt to the Spanish system with the minimum of doubt and disruption. If you have any questions about this article or any other matter contact us, with no obligation, to see how we can help you.