How being on sick leave influences the income tax return

• According to Spanish tax regulations, being on sick leave can have various implications on the income tax return.

Depending on the type of withdrawal and the income received during that period, taxpayers must pay special attention to certain details to correctly comply with their tax obligations.

Temporary disability leave (IT) due to a common illness or non-work accident

When a worker is temporarily disabled due to a common illness or a non-work accident, receives a financial benefit that replaces your salary. This benefit is subject to income tax withholding (IRPF) and must be included in the annual declaration. The benefits received by Social Security for temporary disability are considered income from work for tax purposes. Social Security applies withholdings on these benefits, so it is essential to review whether these withholdings have been adequate.

Leave due to work accident or occupational disease

The tax treatment of sick leave due to a work accident or occupational disease is similar to that of sick leave due to a common illness:

• Mutual benefits: these benefits are managed by mutual companies that collaborate with Social Security and are also considered income from work subject to personal income tax.
• Withholdings: as with Social Security benefits, mutual insurance companies apply withholdings that must be verified and included in the declaration.

Maternity or paternity leave

An important exception is maternity and paternity benefits, which have been exempt from personal income tax since 2018, according to a ruling by the Supreme Court. Therefore, these benefits They should not be included in the income tax return nor are they subject to withholdings.

Leave due to permanent disability

Permanent disability benefits may have different tax treatment:

• Total or absolute permanent disability: These benefits are exempt from personal income tax, as long as they come from Social Security or entities that replace it.
• Permanent partial disability: benefits for permanent partial disability are not exempt from personal income tax and must be declared as income from work.

Consequences on the income tax return

Being on sick leave generally implies a reduction in income, which can result in a lower tax base and, therefore, less tax to pay. However, it is crucial to ensure that all benefits and withholdings are reported correctly.

This decrease in income and, therefore, a lower tax base may mean that some deductions may be affected by the reduction in income. For example, deductions for work income may vary depending on annual income.

As an example, suppose that an employee has been on sick leave for three months in the tax year. During this period, Social Security has paid you a monthly benefit. These benefits are added to the income for the rest of the year and are included in the income tax return. If the withholdings applied during this period were less than usual from your normal salary, you may have to adjust and pay an additional amount on the return.

In short, being or requesting sick leave has several tax implications that must be carefully managed. It is important to remember that you must review the certificates issued by Social Security or mutual insurance companies and ensure that withholdings have been applied correctly to avoid surprises during the income tax return.