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How are pensions taxed?

Pensions are considered income from work and, therefore, are subject to taxation in the same way as payroll received while active, applying a withholding tax whose amount will depend on the economic and family situation of the pensioner.

As a general rule, workers and pensioners with incomes of less than €22,000/year are exempt from submitting the IRFP declaration, if they have more than one payer and the total received from that second payer is greater than €1,500/year, this limit down to €14,000/year.

What pensions are exempt from tax?

We can find some exceptions to this rule, pensions that are exempt from paying personal income tax whether or not they exceed these limits.

Article 7 of the Personal Income Tax Law includes the income exempt from paying personal income tax, and the following pensions are reflected:

  • Absolute permanent disability and severe disability, whether they are Social Security pensions or private insurance. It is important to bear in mind that in this case, the exemption will be limited to the amount of the maximum Social Security pension; any amount that exceeds that limit will be taxed as income from work.
  • Orphan’s pensions and in favor of grandchildren and siblings under 22 years of age or disabled for all work.
  • Pensions for uselessness or permanent disability of the public Social Security and Passive Class schemes.
  • Pensions were recognized for people injured or mutilated by the Civil War.
  • Pensions derived from acts of terrorism, the widow’s pension is considered exempt in this case.

In addition to exempt pensions, it is also convenient to indicate as exempt income, provided that they meet the minimum legal requirements, those from private pensions:

  • The capital received through an Individual Long-Term Savings System (SIALP)
  • Income from Individual Systematic Savings Plans (PIAS)
  • The income derived from the benefits obtained in the form of income by people with disabilities corresponding to social security systems and contributions to protected assets.

Even though it is not 100% exempt from taxation, the Individual Savings legitimate Insurance enjoys a very favorable tax treatment since, at maturity, the insured will pay taxes only on the return on capital, which will be calculated by the difference between the capital received and the total premiums. Paid during the life of the policy, and it will not be included as income from work but as savings that usually have a lower tax rate.

What personal income tax withholding applies to pensioners?

As pensions are considered as income from work, a withholding is applied to them on account of personal income tax; the applicable brackets are the same as for active workers. However, the family and personal minimum are higher for those over 65 years of age.

Calculation of pension withholdings

If your pension does not enjoy tax exemption, you can calculate the applicable withholdings in the simulator available to the Tax Agency and which allows us to calculate the withholding that will be applied to us depending on our personal, economic, and family circumstances. 

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