One of the concepts that most influences the day to day is withholdings. These are known as amounts that a taxpayer deducts to enter them as an advance on taxes that must be paid. But, What are withholdings? There is a lot of types?
Next we want to talk to you about the concept of withholdings, the types that exist and certain peculiarities that you should take into account about this concept.
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What are withholdings
If we rely on the Tax Agency, it defines withholdings as "Amounts that are deducted from the taxpayer by the payer of certain income, as it is established in the law, to enter them in the Tax Administration as an" advance "of the tax that the taxpayer has to pay."
Withholdings should be understood as impositions of an administrative court authority that can withhold a certain amount of the income or income of a person in order to pay advances on taxes that, in the future (short, medium or long term ) you will have to pay.
For example, imagine that you are self-employed and you have to deliver an invoice to a customer. This will not only carry VAT, but also personal income tax will be subtracted. That amount that is subtracted is the one that is entered into the State as an advance of what, in the quarter, is going to be paid (and therefore when the time comes, it has to subtract that amount that has already been paid).
In other words, We are talking about a certain amount that is withheld from a salary, an invoice or, ultimately, an economic perception whose objective is to pay a part of the tax that, in a period of time, you are going to have to pay.
The importance of withholdings
Many people and professionals are aware that they have to make withholdings on their invoices and that, therefore, they will not receive the amount of money that is expected, but much less. But the truth is that it is important to carry out withholdings for several reasons:
- Because they avoid tax fraud. By paying a portion of the tax in advance, the State is making sure that person files their taxes, otherwise they could be losing money. For example, imagine that you have invoiced and you pay 100 euros. But previously you have paid 200 euros of tax advance. Well, if you don't present it, you would lose those 100 euros of difference.
- Because it improves the liquidity of the State. It is inevitable to take this into account. The State receives money from its citizens and that makes it able to pay to fulfill its commitments. If you had to wait for everyone to pay you would not have money to continue "working" which would force you to resort to loans.
How Withholdings Are Calculated
Withholdings are very easy to calculate. Once you know how much you should subtract, you only need to know what the base is, that is, the money to which you must apply the withholding.
For example, imagine that you have a bill of 100 euros and you have to take away the personal income tax. This amount that you must remove is defined by the State and is normally the same each year. In this case, we are talking about 15% (there are exceptions depending on the case, but in general it is this figure).
That means that 15% must be removed from 100 euros. In other words:
15% of 100 euros is 15 euros. 100 - 15 euros is equal to 85 euros. That would be what you would really receive because the other 15 euros are to pay taxes.
When do they apply
It is not always necessary to apply a withholding, there are cases and exceptions in which citizens and companies can get rid of them (although later it implies that they will pay more taxes).
En general, you must apply a withholding when:
- Payment is subject to such.
- The payment exceeds the amount or the base subject to withholding.
- The one who pays is a withholding agent, that is, a self-employed person or company that has to be in charge of entering for your taxes. This applies especially to professionals who have registered in the second and third sections of the IAE (Tax on Economic Activities).
- The beneficiary is subject to withholding (normally, when you invoice a company).
Types of withholdings
When making withholdings, there are many types that you must know to be able to apply them correctly. And it is that both the percentages and the income that are affected by the withholdings are established by a regulation.
In general, the most common withholdings are:
Anyone who has a rental home must make a withholding on invoices, as long as the person who has rented carries out an economic activity. If it does not, it will be necessary to see if there really is no retention or if there are specific cases.
Carried out by professionals, it is the one that It is done on the invoices they issue to collect for their products and / or services. This is like the one explained before, in which a percentage of the base is deducted from the total. In this way, they have to pay the Treasury quarterly taking into account what they have already paid on each invoice.
- Payroll. The payrolls themselves carry a part withheld for payment to the Treasury. This is an amount that is withheld from the salary so that the employer can pay it on the worker's account. When preparing the payroll, the gross salary is taken into account, that is, the amount of money received before withholdings and to whom the amount to be paid to the Treasury is withheld.
- Dividends. If you have dividends, you have to know that you also have to hold onto them. It is carried out both on securities and on real estate.
- By funds, deposits and fixed income securities. Or products that are similar and that, by regulation, would also fall within which it is mandatory to retain an amount.
- Value Added Tax. This is the best known, especially by its acronym, VAT. Normally, employers apply it once they give the price of the product or service (or they put the prices with VAT included). However, they do not receive all that money because part of it is to be paid into the Tax Agency.
Now that you know a little more about withholdings, you will be able to better understand the regulations that govern them and if you are doing the invoices well or if they are withholding you well on the payroll.