Income Tax in Spain: How Payroll Withholding Is Calculated

IRPF (Impuesto sobre la Renta de las Personas Físicas) is one of the cornerstones of the Spanish tax system. It is a progressive tax: the same rate does not apply to your entire income — each bracket is taxed at its own rate. Understanding how it works lets you anticipate your tax return and optimise your withholding.

Key changes for 2025

This year the focus has been on deflating the tax scale in several autonomous communities to offset inflation. Many taxpayers will see a slight reduction in their tax burden, helping to preserve purchasing power in the face of rising prices.

IRPF brackets: understanding progressivity

IRPF is a progressive tax, meaning higher earners pay a higher percentage. Crucially, the highest rate only applies to the portion of income that exceeds the previous bracket — not to all income. General rates (state + average regional) for 2024–2025 are:

• Bracket 1: Up to €12,450 – Rate of 19%
• Bracket 2: €12,451 to €20,200 – Rate of 24%
• Bracket 3: €20,201 to €35,200 – Rate of 30%
• Bracket 4: €35,201 to €60,000 – Rate of 37%
• Bracket 5: €60,001 to €300,000 – Rate of 45%
• Bracket 6: Over €300,000 – Rate of 47%

“Tax planning is not about paying less than the law requires — it is about not paying a single cent more than strictly necessary by using the available tools wisely.”

Deductions you cannot afford to miss

Several expenses can be deducted from your tax base. The most common include pension plan contributions (within updated limits), union fees and legal defence costs. Many autonomous communities add their own deductions for children, rent or primary residence investment.

Why do two people on the same salary have different withholding?

Withholding depends on personal circumstances: marital status, number of dependent children, disability, compensatory pensions, etc. The Form 145 you completed when you started work informs your employer of these circumstances so they can calculate the correct withholding.

What if the withholding was incorrect?

If withholding was too high, the tax authority refunds the difference in your annual tax return. If too low, you will need to pay the difference. That is why it is worth ensuring withholding is set correctly from the start by updating Form 145 whenever your personal circumstances change.