New developments, deadlines, and other key points of the 2020 income tax return

The start of the income tax return campaign is approaching. Although there are not many new developments this year, there are some points worth bearing in mind, since 2020 income was generated in the midst of the pandemic, which will obviously affect many tax returns.

Key dates of the 2021 income tax return campaign

The Spanish Tax Agency (AEAT) announced the calendar for the 2021 income tax return a few weeks ago. The 2020 income tax campaign begins on April 7 and ends on June 30, 2021, although if payment is made by direct debit, the confirmation period ends on June 25, 2021.

Benefits arising from temporary layoff schemes (ERTE)

These benefits are employment income subject to tax; in other words, they are not exempt from Personal Income Tax (IRPF). Therefore, a taxpayer who obtained employment income from two different payers during the 2020 tax year will not be required to file an IRPF return only if either of the following circumstances applies:

– The amount received from the second and any other payers does not exceed €1,500, and total employment income does not exceed €22,000.

– The amount received from the second and any other payers exceeds €1,500, but total employment income received during the year does not exceed €14,000.

Extraordinary benefit for cessation of activity received by self-employed workers

Like the “ordinary” cessation of activity benefit for self-employed workers, the extraordinary cessation of activity benefit is a benefit under the unemployment protection system, and under Article 17.1 b) of the Personal Income Tax Law, unemployment benefits are classified as employment income. Therefore, although it originates in the self-employed worker’s economic activity, it is not income inherent to that activity and therefore cannot be classified as business and professional income.

Basic tips for preparing your income tax return:

Avoid rushing: It is advisable to review the return to include rental income, public aid received, and all possible tax credits and reductions. As every year, it is important to watch out for any changes to regional tax credits.

Cessation of activity benefit for self-employed workers: The extraordinary cessation of activity benefit is classified as employment income.

Early withdrawal from pension plans: Those who were under an ERTE or received the cessation of activity benefit for self-employed workers as a result of the pandemic were able to withdraw the vested rights in their pension plans, up to the limit of the net salaries or income they ceased to receive. These withdrawals are treated as employment income.

Exemption for meal vouchers when teleworking: Since January 1, 2020, the IRPF exemption for in-kind remuneration in the form of indirect canteen services has been extended to also cover remote or off-site work. The exemption applies not only to employees’ meals at the bar or restaurant itself but also when the food is consumed off the premises, whether collected by the employee or delivered to their workplace or to the location chosen by the teleworker.

Minimum Living Income (Ingreso Mínimo Vital): Recipients of the Minimum Living Income and the members of their household are required to file a return.

Rentals during the pandemic: Following the reductions or deferrals of rent payments as a result of the pandemic, landlords will report as income the new amounts agreed by the parties. In any case, necessary expenses will remain deductible, and no deemed income from real estate (imputación de rentas inmobiliarias) has to be reported for those months, since the property remains leased.

Business owners taxed under the modules system: Due to the pandemic, the reduction applied to net business income for 2020 has been increased from 5% to 20% (35% for the tourism, hospitality, and retail sectors). In addition, for the purpose of calculating annual income, the days of inactivity during which the state of alarm was in force in the first half of 2020 are not taken into account, nor are the days in the second half of 2020 on which the economic activity was suspended as a result of restrictive measures adopted by the Autonomous Communities (regions). Finally, taxpayers are permitted to waive, for one year only (rather than three), the objective assessment method (estimación objetiva, EOM) for IRPF purposes, and the simplified regime and the special regime for agriculture, livestock farming, and fishing for VAT (IVA) purposes in 2020 (as is also permitted for 2021).

Tax credit for donations: The Government approved an increase in the tax credit for donations made from January 2020 onward, to 80% of the first €150 donated and 35% of the remaining contributions, which rises to 40% if the amount donated to the same NGO has not decreased in each of the last three years. In addition, donations to the Public Treasury made exclusively to finance expenses arising from the health crisis caused by COVID-19 will also benefit from these increased rates.

Maternity tax credit: Mothers with children under three years of age who are entitled to apply the personal allowance for descendants (mínimo por descendientes) may receive up to €1,200 per year for each child under three, provided that they carry out an activity as self-employed workers or employees for which they are registered with the corresponding Social Security scheme or mutual insurance fund. Monthly advance payment is permitted. However, mothers under a suspension ERTE are not entitled to receive this tax credit for the months during which they are under the ERTE. This exclusion does not affect mothers under an ERTE involving reduced working hours or part-time work.

With regard to the tax credits for large families, for a parent with two children, and for disability of descendants, ascendants, or a spouse, both taxpayers who carry out an activity as self-employed workers or employees and those who receive contributory and non-contributory benefits are entitled to these tax credits. Therefore, persons under an ERTE or receiving the contributory unemployment benefit or the unemployment assistance allowance are indeed entitled to these family tax credits, including for the months during which the benefit or allowance is received.