6.2 Limits and excess contributions

A. Maximum annual contributions to social security systems that may give the right to reduce the tax base

Regulations: Art. 51.6 and Sixteenth Additional Provision Law IRPF

• Maximum annual contributions (except for collective dependency insurance)

  As of January 1, 2021, the set of maximum annual contributions made to social security systems, including, where applicable, those that have been imputed by the promoters, which may give the right to reduce the general tax base may not exceed the amounts provided for in article 5.3 of the consolidated text of the Law regulating Pension Plans and Funds which, after the modification made to it by the Twelfth Final Provision of Law 11/2020, of December 30, on the General State Budget for the year 2021, are the following:

  • 2,000 euros per year for total contributions and business contributions.

  • The above limit is increased by an additional 8,000 euros , provided that such increase comes from employer contributions.

  For the purposes of calculating this limit, the individual entrepreneur's own contributions to employment pension plans or to social welfare mutual funds of which he is, in turn, the promoter and, in addition, a participant or mutual member, as well as those made to company social welfare plans or collective dependency insurance of which, in turn, he is the policyholder and insured , will be considered as company contributions .

  New Income Tax 2021: The general limit applicable to the tax base for contributions to social security systems is reduced from 8,000 to 2,000 euros per year, although it is expected that the new limit may be increased by 8,000 euros for business contributions.

• Maximum annual contribution for collective dependency insurance

In addition, for the premiums paid by the company under collective dependency insurance contracts contracted by it to cover pension commitments and imputed to the worker, an additional limit is established, independent of the previous ones, of 5,000 euros per year.

These limits will be applied individually to each participant in the family unit.

Failure by the participant to comply with the contribution limit provided for in article 5.3 of the consolidated text of the Law regulating Pension Plans and Funds, unless the excess of such limit is withdrawn before June 30 of the following year, shall be sanctioned with a fine equivalent to 50% of said excess, without prejudice to the immediate withdrawal of said excess.

Exceptionally, the sponsoring company may make contributions to an occupational pension plan of which it is the promoter when necessary to guarantee the current benefits or the rights of the participants in plans that include defined benefit schemes for retirement and the existence of a deficit in the pension plan has been revealed through actuarial reviews.

B. Joint maximum reduction limit

Regulations: Art. 52.1 Law Income Tax

• In general

  The maximum joint tax limit for reduction for contributions and contributions imputed by the promoter to the social security systems, including, where applicable, the excesses pending reduction, from the years 2016 to 2020, is constituted by the lowest of the following amounts:

  a) 30 percent of the sum of the net income from work and economic activities received individually in the fiscal year.

  The concept of net work performance that must be taken into account to apply the aforementioned limit is the one defined in article of the Income Tax Law, that is, the result of reducing the total performance (including the reduction by application of the reduction in article 18) by the amount of deductible expenses.

  As regards the net income from economic activities it is that determined prior to the application of the reductions provided for in article 32 of the Income Tax Law. For these purposes, the net income from economic activities attributed by entities under an income attribution regime will be included in the aforementioned sum, provided that the participating taxpayer or member of said entities actually carries out the economic activity.

  b) 2,000 euros per year.

  This limit is increased by 8,000 euros , provided that such increase comes from employer contributions.

  The individual entrepreneur's own contributions to employment pension plans or to social welfare mutual funds, of which he is, in turn, a promoter and participant or mutual member, as well as those made to company social welfare plans or collective dependency insurance of which, in turn, he is the policyholder and insured, will be considered as company contributions, for the purposes of calculating this limit.

  Therefore, in order for the individual entrepreneur's own contributions to be considered as business contributions and included in the calculation of the limit of 8,000 euros, the contributor must be both:

  1. In the case of contributions to pension plans, promoter and participant.

  2. In the case of contributions to social security mutual societies, promoter and mutual member.

  3. In the case of company social security plans or collective dependency insurance, policyholder and insured.

  In addition, 5,000 euros per year for the premiums for collective dependency insurance paid by the company.

• Particularities relating to severe or highly dependent care insurance

  A distinction must be made between private insurance and collective insurance.

  - Private insurance: without prejudice to the fact that they are subject to the above maximum reduction limits, in the case of premiums paid to private insurance covering the risk of severe or great dependency, it must also be taken into account that the total reductions made by all persons who pay premiums in favour of the same taxpayer, including those of the taxpayer himself, may not exceed 2,000 euros per year, regardless of the age of the taxpayer and, where applicable, the age of the contributor.

  - Collective insurance: Pension commitments assumed by companies, including accrued benefits, may be implemented through collective dependency insurance contracts made in accordance with the provisions of the First Additional Provision of the consolidated text of the Law on Regulation of Pension Plans and Funds, approved by Royal Legislative Decree 1/2002, of November 29, in which the company will appear exclusively as the policyholder and the status of insured and beneficiary will correspond to the worker. In this case, the premiums paid by the company under these insurance contracts and charged to the employee will have an independent reduction limit of 5,000 euros per year.

  Comment: The first Additional Provision of the consolidated text of the Law on the Regulation of Pension Plans and Funds approved by Royal Legislative Decree 1/2002, of November 29, was amended, with effect from September 4, 2018, by the first article of Royal Decree-Law 11/2018, of August 31, on the transposition of directives regarding the protection of pension commitments with workers, the prevention of money laundering and entry and residence requirements for nationals of third countries and which modifies Law 39/2015, of October 1, on the Common Administrative Procedure of Public Administrations ( BOE of September 4).

C. Excess of contributions made and not reduced in the years 2016 to 2020

Regulations: Art. 52.2 Law IRPF and nineteenth transitional provision Regulation

Contributions made to social security systems, including contributions imputed by the promoter, which could not have been reduced in the years 2016 to 2020 due to insufficient tax base or exceeding the percentage limit of 30% of the sum of net income from work and economic activities will be imputed to the current year, provided that a request has been made in the respective declarations to be able to reduce the excess in the following five years.

The reduction of the excesses for these years 2016 to 2020 will be carried out with priority to that corresponding to the contributions made and contributions imputed in the year and will be carried out subject to the maximum reduction limits indicated above.

Transitional regime for excess contributions to social security systems corresponding to tax periods 2016 to 2020.

From 1 January 2021, the joint reduction limit for contributions and employer contributions (except for employer contributions to collective long-term care insurance) is reduced to €2,000, but is increased by €8,000 when it comes from employer contributions. However, the excesses pending reduction as of January 1, 2021 were generated in years in which the limit on reduction in tax base for amounts contributed to social security systems did not distinguish between contributions made by the taxpayer and business contributions made by the promoter. For this reason, it is necessary to qualify the excesses from 2016 to 2020 and determine whether they correspond to contributions from the taxpayer or to business contributions.

To this end, the Personal Income Tax Regulations establish a transitional regime that allows that, in the event that among the amounts pending reduction from the years 2016 to 2020, there are contributions made by the taxpayer and contributions imputed by the promoter to the social security systems, it is understood that the amounts pending reduction correspond to contributions imputed by the promoter, with the limit of the contributions imputed in said tax periods. Any excess over this limit will be deemed to correspond to contributions from the taxpayer.

D. Excess contributions and contributions corresponding to the fiscal year

Regulations: Arts. 52.2 Law IRPF and 51 Regulation

Participants, mutual members or insured persons who have made contributions to social security systems may reduce the amounts contributed in the following five financial years, including, where applicable, contributions from the promoter or those made by the company that have been attributed to them, which could not have been subject to reduction in the tax base due to insufficiency of the same or by application of the percentage limit of 30% of the sum of the net income from work and economic activities mentioned above.

The excess that, in accordance with the above, must be applied in the following years will be imputed within the following five years, respecting the legally established limits both for the maximum annual contributions to the social security systems (article 51 of the Personal Income Tax Law) and for the set of reductions to be applied to the taxable base (article 52 of the Income Tax ), even if the participant, member or insured is already retired.

From the 2021 period, when the excess produced includes contributions from the taxpayer and contributions imputed by the promoter, the determination of the part of the excess that corresponds to one and the other will be carried out in proportion to the amounts of the respective contributions and contributions.

Therefore , we must distinguish in the excesses:

• A specific rule for excess contributions to social security systems corresponding to the tax periods 2016 to 2020 (nineteenth transitional provision of Regulation Personal Income Tax ).

  This rule allows that, in the event that among the amounts pending reduction there are contributions made by the taxpayer and contributions imputed by the promoter to the social security systems in those years, it is understood that the amounts pending reduction correspond to contributions imputed by the promoter, with the limit of the contributions imputed in said tax periods. Any excess over this limit will be deemed to correspond to contributions from the taxpayer.

• A general rule applicable to excess contributions to social security systems that occur from the 2021 financial year onwards.

  This rule establishes that when the excess produced includes contributions from the taxpayer and contributions imputed by the promoter, the determination of the part of the excess that corresponds to one and the other will be carried out in proportion to the amounts of the respective contributions and contributions.

Note: the amounts corresponding to the excess of contributions made and not reduced in the years 2016 to 2020 pending application at the beginning of the year, those applied in the declaration and the remainder pending application in future years as well as the contributions and contributions of 2021 not applied whose amount is requested to be able to reduce in the following 5 years, must be recorded in annexes C.2 and C.3 of the declaration, in one of the following sections, as appropriate: "Unreduced excess of contributions to social security systems (transitional regime) corresponding to the years 2016 to 2020 pending reduction ", "Unreduced excess of contributions to social security systems (transitional regime) corresponding to the years 2016 to 2020 pending reduction ", "Contributions to social security systems (general regime) corresponding to 2021, pending reduction in the following years", "Contributions to social security systems (general regime) corresponding to 2021, pending reduction in the following years" or in the section relating to "Unreduced excesses derived from employer contributions to collective dependency insurance pending reduction in the following years".