In these following paragraphs we will explain how we calculate savings and why they often don't match the withholding you see on your paycheck.
It may be surprising to see that the percentage of savings you see in Cobee is greater than the income tax figure you see in your payroll. But don't worry, it's still just as real.
An approach to IRPF
Personal Income Tax (IRPF) in Spain follows a progressive process: the higher the gross salary, the higher the percentage of taxes to be paid. Since it is progressive, it is most likely that you will be taxed in several brackets within the same return, as the percentage to be paid on each bracket is satisfied.
See the following table of IRPF
*Table for general situations in the common territory subject to particularities.
For example, for a gross of 25,000 euros, is the IRPF 30%?
Yes, but not exclusively. Although 30% is the final stretch, this percentage will only be paid for the amount within that stretch.
This will be the way in which the tax will be paid following the logic of evolution on the sections:
- From 0€ to 12,450€, the 19% section is applied.
- From 12,450€ to 20,200€, the 24% section is applied.
- From 20,200€ to 25,000€ , the 30% section is applied.
The calculation of the income tax is made taking into account the rate applied as we earn more and jump in the sections. The percentage of the last stretch in which we are located will be our Marginal IRPF.
So, where does the IRPF come from on my payroll?
First of all, it is important that you understand that when you look at your payroll the amount you see as income tax is not an exact tax payment, but it is an approximate deduction made by our company. The calculation of the final figure to be paid will not be seen until next year's tax return, where it will be calculated whether the amounts withheld coincide or not with what we have to pay to the tax authorities.
When you look at your payroll, you will see that only one percentage is used for the calculation of the IRPF, but that does not mean that the sections we have mentioned are not being taken into account. For the calculation of the payroll, the average IRPF rate is used. The average rate is a single percentage which, when applied to the total salary, is equivalent to applying the different tax brackets. For example, for the example of 25,000 Euros above, the average rate would be 22.66%* (ignoring the personal minimums and reductions/deductions)
Why then the savings I see in Cobee are not the same as the ones I see in payroll?
Through the flexible remuneration and Cobee, the consumption you make will no longer be used for tax calculation (as they are tax-exempt products). The good thing is that this consumption is produced from above and below the salary. What does that mean? It means that you start consuming the higher end, which is the part to which you apply the marginal rate (our highest rate).
However, as we have said, in the payroll they apply a calculation based on the average rate, and this means that the savings shown in the payroll are calculated based on the average rate and not on the marginal rate (which would be the real savings). For this reason, the savings shown on the payroll will be only a part of the total that will be obtained in the tax return at the end of the year.
If we remember the sections through which we have advanced previously for a salary of 25,000 euros, and we take into account the highest, we can see the difference of calculating the savings with an IRPF or with the Marginal IRPF:
- For a salary of 25,000 euros: If we consume 1,000 euros of flexible remuneration and apply the average rate of 22.66% = 1,000 euros x 22.66% = 226.6 euros of savings.*
- For a salary of 25,000 euros: If we consume 1,000 euros of flexible remuneration and apply the marginal rate of 30% = 1,000 euros x 30% = 300 euros of savings.*
This is repeated for any gross salary:
- If a person has a gross annual salary of 20,000 euros* his savings will be calculated with respect to the 24% retention which is his marginal rate (until the entire tranche is consumed and the marginal rate changes)
- If a person has a gross annual salary of 28,000 euros* his savings will be calculated with respect to the 30% retention which is his marginal rate.
Cobee is not magic: The savings you see in your app, although subject to particular conditions, is real. It is applied to each purchase you make of products included in Cobee and generates significant savings. In spite of this, you do not see its impact month after month directly on your paycheck.
*All explanations are generic and simplified for ease of understanding: Not all factors affecting the gross of a salary are taken into account.
**There are cases in which the savings shown in Cobee are not approximate: Special fiscal situations such as disabilities, the change of company in the middle of the fiscal year or receiving other income that does not come from work.