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Practical Income Manual 2022.

Example: contributions to social security systems

Don SMG single, he contributed in 2021 the amount of 2,000 euros to the pension plan of the employment system whose promoter is the company in which he works. For its part, in that year the company made a business contribution of 4,000 euros to the aforementioned pension plan and 2,000 euros to a collective dependency insurance contract that it contracted to implement the commitments assumed with its staff in the agreement.

By not being able to reduce the tax base for all contributions and Don SMG contributions requested, in its individual tax return Personal Income Tax for the 2021 financial year, to reduce in the following five years the outstanding excess that amounted to 3,500 euros for contributions and contributions to the pension plan, and 1,500 euros for the business contribution to collective dependency insurance.

As regards the 2022 financial year, the taxpayer has made contributions to the private pension plan in the amount of 500 euros. For its part, the company has made contributions to its employment Pension Plan in the amount of 1,500 euros and 1,000 to the collective dependency insurance.

Furthermore, the company where Don SMG works has implemented, in agreement with its workers, a "Flexible Remuneration System", by virtue of which they can replace monetary remuneration with remuneration in kind or remuneration in kind with others as long as the total amount allocated Flexible remuneration does not exceed 30% of their total annual remuneration. Specifically, employees are offered the possibility of contributing amounts on their behalf to the same pension plan of the company's employment system. Based on the above, Don SMG requests that they contribute 2,500 euros to the company's employment system pension plan.

Determine the reduction applicable for contributions to pension plans in fiscal year 2022, knowing that the taxpayer's net income from work amounts to 30,500 euros and coincides with his general tax base, which is also 30,500 euros.

Solution:

GENERAL TAX BASE = 30,500

REDUCTIONS FOR CONTRIBUTIONS AND CONTRIBUTIONS TO THE PENSION PLAN

The steps to follow are those:

  1. Check that the amounts contributed in 2022 do not exceed the maximum annual contributions allowed by article 51.6 and the sixteenth Additional Provision of the Personal Income Tax Law:

    • Contributions to the individual pension plan made in 2022: 500 euros.

      The maximum joint annual amount of contributions and business contributions is 1,500 euros.

      Therefore, the contributions to the Individual Pension Plan made in 2022 are within the aforementioned limit.

    • Business contributions and employee contributions within the framework of the Flexible Remuneration Plan made in 2022: 1,500 euros + 2,500 euros.

      The previous limit (1,500 euros) is increased by 8,500 euros provided that such increase comes from business contributions to employment systems or from worker contributions to the same employment system for an amount equal to or less than such business contributions.

      Regarding the worker's contributions to the employment pension plan (2,500 euros):

      • Up to 1,500 euros, which is the amount of business contributions, would be included in the increase in the limit.

      • The remaining 1,000 euros (2,500 – 1,500), which exceed the amount of business contributions, are subject to the general limit, taking into account that this, the general limit, has already been reduced in the amount of contributions to the Plan. of Individual Pensions (1,500 – 500= 1,000).

      Therefore, all amounts for contributions and contributions are within the annual limit.

    • Premiums for group dependency insurance made in 2022: 1,000 euros.

      For group long-term care insurance, an additional limit of 5,000 euros per year is established for the premiums paid by the company. Then, the premiums paid in 2022 are within this limit.

  2. Determination of the joint maximum limit for reductions :

    As the joint maximum limit for reductions (both for the excesses corresponding to fiscal year 2021 and for contributions and contributions to pension plans made in fiscal year 2022), the lower of the following amounts applies:

    1. Percentage limit: 30% s/30,500 euros of net work income = 9,150 euros.

    2. Limit of contributions and contributions: 10,000 euros for contributions and contributions + 5,000 euros for collective dependency insurance.

      • 1,500 euros annually for contributions and contributions.

      • Increase of the previous amount by 8,500 euros, provided that such increase comes from business contributions, or from worker contributions to the same social security instrument for an amount equal to or less than the respective business contribution.

      • Additionally, 5,000 euros for contributions to collective dependency insurance.

    3. The amount of the general tax base of the taxpayer (30,500 euros)

      Keep in mind that the tax base cannot be negative as a result of the reductions, so the amount of the general tax base must also be taken into account as a limit for the reduction.

    Therefore , in this case the joint maximum limit of the reduction will be the percentage limit of 30 percent on work income that amounts to at 9,150 euros.

  3. Reduction of excesses corresponding to the previous fiscal year 2021: 5,000 euros

    The amount pending reduction from 2021, which amounts to 5,000 euros (3,500 euros for contributions and contributions and 1,500 for contributions to collective long-term care insurance) does not exceed the joint maximum reduction limit applicable in 2022 (which is 9,150 euros) and It is applied first on the tax base and for its total amount.

    Once the excess for the 2021 financial year has been applied, the amount with the right to reduce the tax base for the contributions and contributions corresponding to the 2022 financial year cannot exceed 4,150 euros (9,150 joint maximum limit – 5,000 excesses for the previous year).

  4. Reduction for contributions and contributions corresponding to fiscal year 2022: 4,150 euros

  5. Amounts entitled to reduction for contributions and 2022 contributions:

    • Amounts from contributions: 500 euros.

    • Amounts from business contributions: 1,500 euros.

    • Amounts contributed by the worker as Flexible Remuneration: 2,500 euros.

    • Amounts from contributions to collective dependency insurance: 1,000 euros.

    Total contributed: 5,500 euros.

Of the total contributed in 2022, 5,500 euros, it is only possible to reduce up to 4,150 euros (9,150 euros – 5,000 euros of excesses from the 2021 financial year), which are distributed as follows:

  • For contributions and business contributions 4,150 euros.

  • For contributions to collective dependency insurance: 0 euros.

Note: Regarding the distribution of the 4,150 euros, business contributions and contributions are first reduced because it is more beneficial for the taxpayer to the extent that for collective dependency insurance there is a limit of its own, but nothing prevents the taxpayer from first applying the amounts corresponding to these premiums.

GENERAL LIQUIDABLE BASE (30,500 – 9,150) = 21,350

EXCESSES FOR THE YEAR 2022 TO REDUCE IN THE FOLLOWING 5 YEARS

By reducing 4,150 euros in contributions and contributions, the following amounts would remain pending for the following five years, completing the corresponding subsections of Annexes C.3 and C.4 of the declaration:

  • 4,500 euros contributed - 4,150 (remainder of the joint limit) = 350 euros of contributions and contributions.

  • 1,000 euros of contributions to collective dependency insurance.

Given that in future years the application of excesses does not require distinguishing between contributions and contributions, it is not necessary to know which part corresponds to each concept; Only contributions to group long-term care insurance have a different limit.

In short:

General tax base = 30,500

Reduction for contributions and business contributions to pension plans:

  • Reduction of excesses 2021 = -5,000

  • Remaining tax base (30,000 - 5,000) = 25,500

  • Reduction for contributions and contributions 2022 (*) =  -4,150

    • Contributions made (500 + 1,500 + 2,500 + 1,000) = 5,500

    Contributions made = 500

    Business contributions = 1,500

    Flexible remuneration = 2,500

    To collective dependency insurance = 1,000

    • Applicable limit = 4,150

General taxable base (30,500 - 5,000 - 4,150) = 21,350

Excesses for fiscal year 2022:

For contributions and contributions = 350

For contributions to collective dependency insurance = 1,000

(*) The amount corresponding to the remainder of the joint limit is less than the sum of the contributions and contributions made in 2022 to the set of social security instruments, so it can only be reduced up to said amount, 4,150 euros, pending reduction for the following 5 exercises the excess as specified previously.