Receiving a productivity or performance prize may be even more advantageous this year, provided that some conditions defined by the Tax Authority are met. In 2025, an IRS exemption entered into force that can cover these income, with a limit of up to 6% of the annual base remuneration. However, there are rules to comply.
When is the award free of IRS?
The exemption does not automatically apply to any value.
According to the current fiscal legislation, so that a performance or productivity prize is exempt from IRS and contributions to social security, the following conditions are required:
-Pontality and voluntary character: The prize cannot be usual or contractually foreseen. It must be a punctual and voluntary attributed gratification;
-Minimum salary of 4.7%: The company must have increased the annual average base of workers at least 4.7% compared to the previous year. This increase has to apply in particular to workers with compensation equal to or less than the company’s average;
-Collective Agreement Vigency: The employer must be covered by an updated collective labor regulation instrument in the last three years.
Taxation and Return: How does it work in practice?
Although the prize meets the exemption requirements, it will initially be subject to source retention, ie the employer will apply the normal IRS rate at the time of payment. The reimbursement will then be determined in the annual IRS settlement.
According to the Tax Authority, it is at the time of the annual declaration that the correction will be made, returning the amount of improperly retained IRS if all conditions are gathered.
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Social Security also does not charge
If the requirements are met, social security contributions are also not due, allowing both the worker and the employer to benefit from the tax incentive.
A concrete example
Imagine a worker with an annual base remuneration of 30,000 euros:
- 6% of this value corresponds to 1.800 euros;
- If you receive a 2,000 euros prize, only the 1.800 euros will be exempt;
- Remaining 200 euros will be taxed normally as a dependent work income.
According to the OT, all the money will be free of contribution to social security, provided that the legal criteria are fulfilled.
What is the legal framework?
These rules are provided for in Article 2 (3) (b) of the IRS Code, with changes introduced by the state budget to 2025.
What should the company do?
To ensure that the prize has the correct tax treatment:
- It must indicate, in the monthly declaration of remuneration, the amount assigning the exempt income category;
- Register the reasoning of the application of the exemption;
- Ensure that it meets the three requirements required by law.
An opportunity to reward and motivate
This measure represents a relevant opportunity to value workers and, simultaneously, reduce the prize tax cost. Exemption may function as a stimulus to productivity and compliance with goals by companies.
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