Retroactive salary increases are withheld separately from the monthly salary

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The backdated salary increases for 2023 due since January will be treated as an autonomous part of the monthly salary for the purposes of withholding income tax at source when they are paid.

Given the current context of high inflation, wage negotiations took longer to be concluded this year, and there are also situations of additional increases, which can be retroactive to January.

In these situations, the payment of the amounts in question (retroactive payments) is subject to a special withholding regime, as provided for in the IRS Code, which states that “when Category A or H income is paid or made available to the holder in a month in the same year that is different from the month to which it relates, the tax is recalculated and only the difference between the amount thus determined and that which, with reference to the same period, has possibly been withheld is withheld.

In other words, as stated, in response to Pp, an official source from the Ministry of Finance, “when there is a retroactive payment for months of the same year, the tax is recalculated and only the difference between what has been calculated and what may have already been withheld is withheld.

In the case of the civil service, which this month will receive the 1% interim increase, the solution is different, with the government deciding that the amount corresponding to the retroactive amounts from January to April “will not be subject to withholding” from the IRS.

Meanwhile, the Ministry of Finance announced today that it has given instructions to the companies in the State Business Sector to process the additional 1% salary increase announced in March for the Public Administration.

“The government has given guidelines to the companies in the State Business Sector to implement a remuneration policy that takes into account the interim 1% increases for the Public Administration, following the extraordinary increase for public service workers announced in March,” Fernando Medina’s ministry said in a statement.

According to the Ministry of Finance, “in an order addressed to the administrations of the companies in the State Business Sector, the Ministry of Finance specifies that, in 2023, they may proceed with an additional increase in the overall wage bill up to 1% more.

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