Understanding Estimated Total Annual Income

PeopleSoft Global Payroll for Spain calculates IRPF taxes for the state and all of the fiscal territories as a percentage of an employee's taxable income. The percentage of an employee's income that applies to IRPF taxes is based on the employee's annual income, minus reductions due to personal situations, number of dependents, salary level, and disability. You run the process that calculates the tax percentage as part of regular payroll. Whenever information affects an employee's taxes, the employer must recalculate the tax percentage by running the normalization process. The law states that employers must normalize tax percentages for their employees at least once quarterly even if no information changes.

When calculating an employee's tax percentage, either for the first time of the year or through the normalization process, the system estimates the employee's annual income because the actual amount is not available until the end of the year.

The system calculates the estimation of annual income to use as the tax base for IRPF taxes. An employee's total annual income includes fixed income, variable income, and in kind income. This estimation is necessary because the only time you can calculate the true tax base is in the December payroll run when the year is complete. The rest of the year therefore requires an estimation of the tax base for the remaining months.

The system performs the same tax base estimate calculations for all fiscal territories, both state and historical.

PeopleSoft Global Payroll for Spain enables you to control the level of accuracy that you want to have for the tax base estimate defining how you want the system to estimate the annual taxable base during the calculation of IRPF taxes.

The system takes fixed income and benefits income amounts from the Compensation page of the Job Data component (JOB_DATA) and the annual benefits base rate from the Benefits Program Participation page. These values are considered the theoretical annual compensation, so the system uses these values as the starting point of the estimation.

To estimate the variable income Global Payroll Spain use as the base the variable income from last year.

Calculation of Estimated Tax Base

The estimated tax base consists of three parts:

  • The amount paid from the beginning of the year through the last month.

  • The amount for the current month.

  • The amount estimated for the remainder of the year.

Each part of the estimated tax base consists of three different members:

  • Fixed income

  • In kind income

  • Variable compensation

The system performs a separate calculation for each part and stores the results of the tax base calculation details. The system calculates the total estimated tax base using the following equation:

Total Base = Accumulated values year-to-date + current month values + year remainder estimation

Two additional factors that the system considers when estimating the tax base are flexible compensation and the compensation coming from earnings entered through the Earnings and Deduction Assignments menu components. You can set up the system to add these earnings to the corresponding member of the tax base: fixed income, in kind income, or variable compensation based on the nature of the compensation.

The system uses the TAX WA RSLT writable array to store the results of the tax percentage calculation, which includes the tax base and other information considered during the calculation. The system stores details in the GPES_TAX_RLST table for each of the different members of the tax base estimate as well as the total tax base value.

You can view the tax base calculation details through the IRPF Calculation Results ESP component.