Paycheck: applicable deductions

Find out what kinds of deductions may be applied to your paycheck
Although most workers are familiar with the items that appear in their paycheck, many are not so familiar with some of its elements, especially the deductions. It is worth spending a few minutes to understand this aspect, which is one of the most important aspects in the document that shows employee payments and which is highly relevant when doing the annual tax return. In this article we explain in depth everything you need to know about your paycheck and its deductions.
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Structure and elements of a paycheck

Before getting into the different types of deductions that are shown on your paycheck, it's important to know the elements that make it up. According to the law, every paycheck must contain a series of items in a well-defined structure. As a general rule, paychecks are structured as follows:

  • Header: this section always shows the details of the employee and the company, as well as the settlement period and the age.
  • Payments: the second section of the paycheck contains a series of amounts that reflect the base salary, salary supplements and non-salary payments. The sum of all these amounts is the total accrued.
  • Deductions: this last section of the paycheck contains everything that is deducted from the base salary to yield the net salary of an employee.

Therefore, while the accrued income reflects the gross salary of an employee, the deductions are everything that the company withholds from the employee's salary for specific purposes. Deductions can be of several types: Personal Income Tax withholdings, payments (trade union and Social Security), payments in kind, advances and others.

Personal Income Tax withholdings

In most paychecks, except for certain special cases, the employer withholds part of the employee's salary. This withholding represents an advance of the payment that the employee will have to make to the Tax Agency as part of the personal income tax (IRPF). When the time comes to file the annual Personal Income Tax return, the employee will have to pay the remaining part of the tax, or receive the corresponding refund if the company withheld more than the employee owes. It is important to keep in mind that the tax withholding applied depends on the tax bracket the employee is in, as determined by their salary.

Trade union and Social Security payments

Moreover, the deductions that are applied to a worker's paycheck may contain items, such as the payment of various sums. If the employee belongs to a trade union, a trade union fee is deducted monthly. The paycheck also lists deductions resulting from Social Security contributions This is because the Social Security contribution is paid by both the company and the employee. While it is true that the company pays the lion's share of this amount, the employee must also pay their corresponding part. The elements that comprise the Social Security contributions and the percentage of the base salary that the employee must contribute are:

  • General contributions: 4.70%. This section includes common illnesses, maternity and non-work-related accidents.
  • Overtime: 2.00% for force majeure and 4.70% in other cases.
  • Work-related accidents: 0.00%.
  • Unemployment: 1.55% if the contract is permanent and 1.60% if it is temporary.
  • Salary Guarantee Fund: 0.00%.
  • Vocational training: 0.10%.
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Other types of deductions

In addition to Social Security withholdings and payments, many employees can find other types of deductions on their paychecks: payments in kind. It's very common for certain companies to give their employees medical insurance, meal vouchers or transport cards, for example. This is what is called payments in kind, and it's one of the deductions that can appear on a paycheck.

Also, if an employee requests an advance on their salary, they will see the relevant deduction on their paycheck. Other deductions that may appear in a paycheck are the Tax Agency garnishments, which occur when said agency withholds part of the worker's salary to collect a debt.

In short, deductions of one type or another appear on all paychecks, although they are not always given sufficient attention. Is important be familiarized with these concepts for know calculate the income after taxes and brute that perceives with accuracy and plan better the income.

BBVA is not liable for the content, truthfulness, accuracy, adequacy, integrity or timeliness of the information included in the articles, which were prepared by third parties external to BBVA. The article is for information purposes only. It is not binding or compulsory and it does not constitute a commercial offer or contractual commitment on the part of BBVA.

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