Briefing note: Calculation of withholdings from July 5, 2018

Briefing note: Calculation of withholdings on work income that are paid or paid from July 5, 2018

INFORMATION NOTE REGARDING THE CALCULATION OF WITHHOLDINGS ON WORK INCOME THAT IS PAID OR PAID FROM JULY 5, THE DATE OF ENTRY INTO FORCE OF THE 2018 GENERAL STATE TAX LAW.

Law 6/2018, of July 3, on the General State Budget for 2018, (Official State Gazette of July 4) modifies article 101 and introduces a new Additional Provision 47 in the Personal Income Tax Law. These provisions establish, from their entry into force, three relevant modifications in relation to the calculation of the percentage of withholding and payment on account to be made on the income from work that is satisfied or paid from that moment on; specifically:

New limits excluding the obligation to withhold (previously contemplated in article 81.1 of the Personal Income Tax Regulations), establishing higher amounts and differentiating the limits in the case of the group made up of Social Security pensioners or passive classes or those receiving unemployment benefits or subsidies;
For the purposes of determining the withholding base established in article 83.3 of the Tax Regulations, the amounts of the reduction for obtaining work income regulated in article 20 of the Tax Law are modified upwards for net work income of less than 16,825 euros per year; and
Finally, the reduction in the percentage of withholding or payment on account of work income is increased from 50% to 60% in the case of taxpayers resident in Ceuta or Melilla who obtain work income there that can benefit from the deduction for obtaining income in Ceuta and Melilla contemplated in article 68.4 of the Tax Law.

These modifications will only affect those workers who are in one (or several) of the following situations:

Workers whose net income from work in 2018 (once any reductions due to irregularity have been applied) does not exceed 16,825 euros per year.
Residents of Ceuta or Melilla who, during the 2018 financial year, have obtained income from work in these cities, may benefit from the deduction for obtaining income in Ceuta and Melilla under art. 68.4 LIRPF.
Taxpayers who have obtained annual gross income of no more than 22,000 euros during the 2018 financial year and to whom the limit established in article 85.3 of the RIRPF on the withholding rate must be applied (limit that is affected by the new limits excluding the obligation to withhold).

Therefore, in accordance with the provisions contained in DA 47 LIRPF, to calculate the withholdings and payments on account of the work income that are satisfied or paid in 2018 to taxpayers who are in one or more of the previous situations , the following must be taken into account:

The withholdings and payments on account to be made on employment income that are paid or paid up to the day before the entry into force of the LPGE-2018 and, therefore, of the modifications introduced by this LPGE in the LIRPF, will be calculated in accordance with the general withholding procedure in force on December 31, 2017.

The withholdings and payments on account to be made on the work income corresponding to the rest of the tax period, which are satisfied or paid from July 5, will be calculated by obtaining a new withholding rate, , making the corresponding adjustment to the withholding rate, with the following new features:

For the purposes of the reduction for obtaining work income referred to in letter d) of art. 83.3 RIRPF, the provisions of the second paragraph of section 1 of the new DA 47 of the LIRPF shall apply.

The new limits excluding the obligation to withhold, contained in point 1) of section 2 of the new DA 47 LIRPF, will apply, which are reproduced below:

**Limits applicable in general, except when it concerns pensions or passive assets of the Social Security or Civil Service regime, or unemployment benefits or subsidies:**
Taxpayer situation	Number of children and other descendants who entitle the person to the minimum for descendants {1}
	0	1	2 or more
Single, widowed, divorced or legally separated taxpayer {2}	_	15.168	16.730
Taxpayer whose spouse does not earn more than 1,500.00 euros per year, excluding exempt income {3}	14.641	15.845	17.492
Other situations {4}	12.643	13.455	14.251

**Limits applicable to pensions or passive assets of the Social Security or Civil Service regime, or unemployment benefits or subsidies:**
Taxpayer situation	Number of children and other descendants who entitle the person to the minimum for descendants {1}
	0	1	2 or more
Single, widowed, divorced or legally separated taxpayer {2}	_	15.106,5	16,451.5
Taxpayer whose spouse does not earn more than 1,500.00 euros per year, excluding exempt income {3}	14.576	15.733	17.386
Other situations {4}	13,000	13,561.5	14.184

The amounts in this second table will be increased by 600 euros for pensions or passive assets from the Social Security and Civil Servants regime and by 1,200 euros for unemployment benefits or subsidies.

And, finally, the maximum withholding rate percentages established in articles 85.3, 86.2 and 87.5 of the RIRPF will be taken into consideration.

When should this exceptional regularization be practiced?

The type of withholding or payment on account, in these cases, will be regularized, if applicable, in the first work income that is satisfied or paid from the entry into force of the PGE-2018 Law, that is, from July 5 .

However, with respect to the affected workers, the regularization referred to in the previous paragraph may be carried out, at the payer's option, on the first employment income that is paid or credited from August 1 , in which case, the type of withholding or payment on account to be made on employment income paid prior to this date (that is, until July 31 ) will be determined taking into consideration the regulations in force as of December 31, 2017.

Procedure to carry out regularization

Regarding workers included in any of the situations indicated above, the regularization of the withholding rate will be carried out as follows, even if none of the relevant variables have changed for this purpose:

A new withholding tax rate is calculated in accordance with the provisions of Article 85 of the Regulation, that is, in general:
1. Firstly, determining a new “basis for calculating the withholding rate” and applying the rates resulting from applying the withholding scale of article 101.1 of the LIRPF.
2. The resulting amount will be reduced by the amount derived from applying the above scale to the amount of the “personal and family minimum to calculate the withholding rate”, without the result of this reduction being negative.
A new “withholding rate” will be calculated by multiplying by 100 the quotient obtained by dividing the new withholding rate by the total amount of the remuneration (Art. 86 of the Regulation).
This new withholding rate will be reduced by the amount of the withholdings and payments on account made between January 1 and or, where applicable, at the payer's option, until July , when the adjustment is made to the first returns from August .
The new applicable withholding rate from July 5 (or from August 1 , at the payer's option) will be obtained by multiplying by 100 the quotient obtained by dividing the difference resulting from the previous section by the total amount of remuneration remaining until the end of the year and will be expressed with two decimal places.

These operations can be carried out by using the new version of the Withholding Calculation Service available the AEAT website, starting on July

In order to correctly carry out the commented regularization, the regularization cause “11” (Other causes) of those provided for in said calculation Service must be used, with the sole exception of the concurrence of this exceptional case of cause 11 with any of the cases identified with cause 9 or cause 10 (that is, the communication of the right or, where appropriate, the loss of the right, of the recipient to the reduction of the withholding rate for the payment of loans for the acquisition of the habitual residence), these last circumstances being that, if applicable, oblige the use of causes 9 or 10 (and not cause 11) to correctly carry out the regularization corresponding to both reasons.

When regularizing in the month of July (or in August, at the payer's option) using cause 11, the application will require the completion, also exceptionally, of the following boxes (in addition to those normally required when regularization cause 11 is recorded, that is, wages already paid and withholdings already made prior to the regularization):

Annual remuneration considered prior to regularization.
Pre-regularization returns were obtained in Ceuta and Melilla.
At some point prior to regularization, a reduction was applied for home loan payments.
Amount of the reduction for housing loan payments determined before regularization.

It is very important to highlight the exceptional nature of the use of regularisation cause 11. Therefore, once the regularisation of the month of July 2018 (or August, at the payer's option) has been carried out for the affected workers, through the use of said cause, the subsequent use of this cause 11 must be limited only to the cases for which it is expressly provided for , which are those indicated in the Help of the 2018 Withholding Calculation Service, published on the AEAT website. These cases are the following:

When it is necessary to regularize the withholding rate because the recipient has acquired, during the calendar year, the status of personal income tax payer due to a change of residence.
When it is necessary to regularize the withholding rate because the recipient has changed, during the calendar year, his or her habitual residence from Navarre or the Historical Territories of the Basque Country to the rest of the Spanish territory.
When it is necessary to calculate the new withholding rate in the cases referred to in article 118.3 of the RRPF, due to the exclusion of the recipient from the special tax regime for the Non-Resident Income Tax provided for in articles 113 and following of the aforementioned Regulation.

It is also important to highlight that, apart from the exceptional case discussed in this Note, when cause 11 is recorded as a reason for regularization due to the occurrence of any of the three previous cases during the fiscal year, only the sections corresponding to:

Remuneration already paid prior to regularization.
Withholdings and payments on account already made prior to regularization.

Consequently, after July 2018 (or August, at the payer's option, with respect to the changes introduced by the new LPGE-2018) it is incorrect to use reason 11 to regularize the withholding rate in situations other than the three previously mentioned , since such use, in addition to being improper, may provide the user with erroneous results.

Finally, it should be noted that in order to determine the type and amount of withholdings corresponding to recipients hired after July 4 2018, the new version of the 2018 Withholding Calculation Service will be used (the one in force as of the entry into force of the LPGE-2018) without the need to carry out the regularization referred to above, without prejudice to any regularizations that may subsequently be carried out for other reasons.

Madrid, July 4, 2018