Tax and payroll glossary
The terms that appear on your payslip, in your income-tax return and in your contract, explained in plain language and with each one's legal reference. Search for a word or filter by category.
28 terms
- Annual income-tax returnIncome tax
This is the IRPF's annual reckoning: the tax you actually owe for the whole year is worked out and compared with what was withheld month by month. If too much was withheld, you get a refund; if too little, you owe the difference. It is also when regional deductions and your community's scale, which the monthly withholding ignores, come into play.
- Bracket (progressive scale)Income tax
This is each of the steps the IRPF scale is divided into, each with its own rate. A common mistake is to think that moving up a bracket makes your whole salary taxed at the higher rate: it does not. Each bracket applies only to the portion of your income that falls inside it, so earning one euro more never leaves you with less net pay.
- Collective agreementContract
This is the agreement between workers' and employers' representatives that sets the working conditions of a sector or company: salary tables, working hours, holidays, job categories and more. It applies across the scope it covers, above whatever your individual contract says, as long as it improves the legal minimums. It can pay above the SMI, never below.
- Common contingenciesContributions
This is the main Social Security contribution concept: it covers situations not arising from work, such as ordinary illness, non-work leave and, above all, the pension. Of the total contributed under this heading, part is paid by the employer and a smaller part is deducted from your payslip. It is the largest Social Security deduction you will see on your slip.
- Contribution baseContributions
This is the amount on which Social Security contributions, yours and the employer's, are calculated. For an employee it starts from gross salary (including the proportional share of the extra payments) and is bounded by a minimum and a maximum base: above the cap, the excess salary no longer contributes. It is also the base that determines future benefits such as unemployment or the pension.
- Deductions (on the payslip)Payslip
These are the bottom part of the payslip: what is subtracted from your earnings to reach what you take home. The two big ones are the IRPF withholding and your Social Security contribution (common contingencies, unemployment, training, MEI). Do not confuse these payslip deductions with IRPF deductions, which are a different concept from the annual return.
- Earned-income reductionIncome tax
This is a reduction subtracted from your employment income before the IRPF is calculated, designed to ease the tax burden on lower salaries. It is larger the lower the salary and tapers off as pay rises, disappearing above a certain threshold. It is one reason two people on the same gross but very different levels can have proportionally different withholdings.
- Earnings (devengos)Payslip
These are the top part of the payslip: everything the employer credits you for the period, such as base salary, supplements, overtime or the prorated share of the extra payments. The sum of the earnings is your total earned, the gross of that slip, from which the deductions are then subtracted to reach the net amount payable.
- Extra payments (pagas extra)Payslip
These are payments on top of the monthly salary that you are entitled to by law, at least two a year (usually in summer and December). They can be paid separately, in their month, or prorated, spread across the twelve monthly payslips. Hence the distinction between being paid in 14 payments (two separate extras) or 12 (all prorated): the annual salary is the same, only how it is spread changes.
- Final settlement (finiquito)Contract
This is the settlement of what the company owes you when your contract ends, whatever the reason: the days of salary for the last month worked, accrued but unused holiday, and the proportional share of the extra payments. It is not the same as severance pay: you get the finiquito whenever you leave, regardless of the cause, while severance is only due in certain dismissals.
- Flat-rate scheme (self-employed)Contributions
This is a reduced, fixed fee for anyone registering as self-employed for the first time (or returning after several years out), during their first months of activity. It replaces the fee their income would otherwise call for and aims to make starting a business cheaper. Its amount and duration are set by the rules in force and can be extended if income stays low.
- General taxable baseIncome tax
This is the part of your income taxed on the progressive scale: essentially your employment or business income, once Social Security contributions, deductible expenses and the earned-income reduction are subtracted. It is kept separate from the savings base because each has its own scale. The personal and family minimum then applies against this general base.
- Gross salaryPayslip
This is your pay before deductions: the total the employer credits you, before the IRPF withholding and your share of Social Security are taken out. It is the figure that usually appears in the contract and in job offers, almost always as an annual amount. It is not what lands in your bank: for that you have to go from gross to net.
- Gross tax quota (state and regional)Income tax
This is the IRPF that results from applying the scales to your base, before deductions and the withholdings already paid are subtracted. It splits into two halves: the state quota, the same across Spain, and the regional quota, which each community sets with its own scale. That is why, at the same salary, the annual IRPF can vary with where your tax residence is, even though the monthly withholding is identical everywhere.
- IPREMContract
The Public Multiple-Effect Income Indicator is a reference index used to set the amounts of grants, scholarships and benefits, including the minimum and maximum caps on unemployment benefit. It is updated each year in the State Budget. It replaced the SMI as the reference for these purposes, precisely so that raising the minimum wage would not automatically drag all those thresholds up.
- IRPF (personal income tax)Income tax
Spain's personal income tax charges what you earn in a year: your salary, self-employed income, interest and dividends, and capital gains. It is progressive, so the more you earn, the higher the rate applied to each band. On your payslip it is collected in advance through a monthly withholding, and the annual return settles the account.
- Joint taxationIncome tax
This is the option for the members of a family unit to file a single income-tax return combining their incomes, instead of one each. It grants a reduction to the base (larger for single-parent families), so it usually pays off when one spouse earns little or nothing, and not when both have similar incomes. It only affects the annual return: the monthly withholding is always calculated individually.
- Maximum contribution base (cap)Contributions
This is the upper limit of the contribution base: the part of salary above that cap does not contribute to the Social Security. So on high salaries the contribution stops growing beyond a point and the effective Social Security percentage on gross pay falls. The cap is updated each year and has been rising in recent years.
- MEI (intergenerational equity mechanism)Contributions
This is an additional contribution created to strengthen the pension system as the largest generations retire. It applies on the common-contingencies base and its rate rises step by step year on year on a legal timetable. Most is paid by the employer and a smaller part by the worker; on the payslip it adds to the other Social Security contributions.
- Net salaryPayslip
This is what you actually take home: gross salary once the IRPF withholding and your share of Social Security contributions are subtracted. It is the figure that really reaches you each month, and depends not only on your gross but on your personal and family situation, which affects the withholding. Split over 12 or 14 payments, the same annual salary gives a different monthly net.
- Personal and family minimumIncome tax
This is the part of your income considered to cover your basic needs and your family's, and which therefore should not be taxed. It includes a taxpayer minimum plus supplements for age, disability, descendants (children) and dependent ascendants. It is not subtracted from the base: the scale is applied twice, and the minimum's quota is deducted from the base's quota, so that band is effectively taxed at the lowest rate.
- Proration of extra paymentsPayslip
This is spreading the amount of the extra payments across the twelve payslips of the year, instead of paying them all at once in their month. Being paid prorated (over 12 payments) raises your monthly payslip but removes the double-pay months; being paid over 14 does the opposite. The annual gross and total IRPF are identical: only when you receive each euro changes.
- Savings taxable baseIncome tax
This is the part of your income made up of interest, dividends and capital gains (for example, from selling shares or a property). It does not follow the general scale but its own savings scale, with rates from 19% to 30% depending on the amount. That scale is the same across Spain: it does not change with your autonomous community.
- Self-employed contribution (RETA)Contributions
This is what a self-employed worker pays the Social Security each month for being registered in the special self-employed scheme (RETA). Since 2023 it depends on your net income: you pick a base within the bracket that matches what you earn, and the contribution rates apply to it. Unlike an employee, the self-employed worker bears the whole fee, with no employer paying a share.
- Severance payContract
This is the compensation due when the company terminates your contract in certain cases, calculated in days of salary per year worked. A fair objective or collective dismissal gives 20 days per year, with a cap; a dismissal ruled unfair, 33 days per year (45 for years before 2012), also capped. It is distinct from the finiquito, which is paid in every case.
- Statutory minimum wage (SMI)Contract
This is the minimum wage any full-time worker in Spain can be paid by law, whatever their sector. The government sets it each year by royal decree and it is expressed in daily, monthly and annual terms. No collective agreement can pay below the SMI: if its table falls short, the SMI prevails.
- Unemployment benefit (paro)Contract
This is the contributory benefit you draw if you lose your job having contributed enough. Its duration depends on how much you contributed (from 4 months to 2 years) and its amount is calculated on your regulatory base: 70% for the first six months and 60% after, with minimum and maximum caps that depend on the IPREM and dependent children. It is run by the SEPE and has IRPF and Social Security deducted from it.
- Withholding (withholding rate)Income tax
This is the IRPF your employer deducts from each payslip and pays to the tax office on your behalf. The withholding rate is a percentage estimated at the start of the year from your expected salary and your personal and family situation, following the regulation's general procedure, and recalculated if your circumstances change. It is not a separate tax: it is a payment on account of your IRPF, settled in the annual return.