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Date Published: 02/01/2025

Managing income tax withholdings: Your guide to a stress-free 2025

Make sure you’re paying the right amount of income tax in Spain to avoid a big tax bill later

We may only be in the first flushes of 2025 but it’s never too early to start thinking of ways to save money during the year ahead, or, at the very least, ways to avoid ending up owing cash back. In fact, it’s the perfect time to get ahead on managing your finances, especially when it comes to income tax (IRPF) withholdings.

A little preparation now can help you save money or avoid unexpected tax bills when filing your tax return later in the year.

What are IRPF withholdings?

IRPF (Impuesto sobre la Renta de las Personas Físicas) withholdings are amounts deducted from your salary each month by your employer and sent to the Tax Agency as an advance payment toward your annual income tax. In an ideal world, these deductions would match your exact tax liability, leaving you with nothing extra to pay, or claim back, when you file your return.

But here’s the catch: calculating these withholdings isn’t an exact science. They often don’t account for factors like deductions or other strategies that could reduce your tax burden. This means you may end up owing money, or receiving a refund, when the final calculation is made.

How are IRPF withholdings calculated?

Your withholding rate depends on several factors, including your salary amount, naturally, your personal and family situation as well as the type and duration of your work contract.

For example, temporary contracts have a low 2% withholding rate, which often leads to a tax bill later. Similarly, if you work two jobs or switch employers during the year, withholdings may fall short, resulting in a payment due at tax time.

Withholding rates are also progressive, meaning higher earnings are taxed at higher rates:

Up to 12,450 euros: 19%
12,451–20,199 euros: 24%
20,200–35,199 euros: 30%
35,200–59,999 euros: 37%
60,000–299,999 euros: 45%
Over 300,000 euros: 47%

Keep in mind that these rates cover only the state portion of your taxes. Each autonomous community can (and usually does) apply its own additional rates.

Tax exemptions

Currently, the IRPF includes a tax-exempt threshold of 15,876 euros, roughly aligned with the Interprofessional Minimum Wage (SMI). If the SMI increases in 2025, as expected, this threshold could rise slightly to 16,666.8 euros.

If you earn below this exempt limit, you’ll likely see minimal or no withholdings. While this might seem like a benefit, it could lead to a tax bill if you’re required to file a return.

For instance, the filing thresholds are:

22,000 euros if you have a single employer.
15,000 euros if you have multiple employers and earn more than1,500 euros from secondary jobs.

How to adjust your withholdings

To avoid owing taxes or receiving a large refund, you can adjust your IRPF withholdings. Here’s how:

Check your current withholding rate. Ask your employer or use the Treasury’s Form 145 simulator.
Estimate your annual tax liability. Use the AEAT income simulator to predict your tax result.
Request an adjustment. Ask your employer to increase your withholding rate to cover any shortfall.

Should you adjust your withholding percentage?

From a financial perspective, keeping your withholdings low and managing the difference yourself can be smarter. It’s like giving the government an interest-free loan if you overpay. Instead, you could invest the money in high-interest accounts or funds to earn a return.

That said, many people prefer higher withholdings for the peace of mind of avoiding a tax bill. It’s a personal choice.

With a little effort now, you can take control of your taxes and start the year on a financially sound footing.

Also of interest: The only way is up for Spanish prices in 2025

Image: Freepik

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