The second large deduction is the IRPF withholding: the company pays part of your salary to the tax office in advance, and in the annual tax return it is settled against what you really owe.
How it is calculated
- The company estimates your yearly pay and, with your personal and family situation, works out a rate it applies to each payslip (IRPF Regulations, articles 80.1.1 and 86).
- If your pay does not exceed a yearly amount that depends on your family situation and number of children, there is no withholding (article 81). The exact amount is in the table in article 81 and is updated by the Government.
- There are minimum rates: 2 % on contracts shorter than a year and 15 % in special dependent employment relationships (article 86.2).
- There are flat rates: 35 % for company directors and board members and 15 % for courses, talks and works with assignment of rights (article 80.1.3 and 80.1.4).
Form 145 and regularisation
- You must tell the company your personal and family situation on form 145, before starting or before 1 January each year, and report any change (articles 88.1 and 88.3). If you do not, the company applies the rate without taking your circumstances into account (article 88.2).
- Changes that lower the rate take effect when you report them; changes that raise it must be reported within 10 days (article 88.4).
- The company regularises the rate when your pay changes, your contract is extended, a child is born, you move for work or your family situation changes (article 87.2).
- You can ask in writing for a higher rate so your tax return does not end in a payment; it applies at least until the end of the year (article 88.5).
In practiceYou sign a three-month contract and 2 % is withheld: that is the minimum in article
86.2. If it is renewed when it ends and you stay all year, the company must regularise the rate (article 87.2.1) and you will see the
withholding rise on the next payslips: it is not a mistake, it is so the tax return does not hit you all at once.