When a court recognizes a permanent disability that Social Security had denied years before, the worker usually receives at once all the arrears accumulated since the pension was denied. The question about how to declare these arrears in personal income tax had been without a definitive answer from the Supreme Court for years. The Contentious-Administrative Chamber of the Supreme Court has now resolved it in ruling 173/2026, in which it establishes that all these arrears are taxed in the year in which the ruling became final, not distributed among the years to which each monthly payment belonged. Lawyer Miriam Ruiz Acosta, creator of the channel Legal Commitment, has explained the practical consequences of this criterion for those who have a disability file pending in court.
When Social Security denies the request, the worker appeals to the social court and, if the judge agrees, the recognition has retroactive effects from when the original denial occurred. “As you already know, most permanent disability pensions are recognized judicially,” explains Ruiz Acosta, “which means that in the end it is very likely that you will end up receiving retroactive effects from when you were denied that pension.”
Now, the lawyer specifies an exception: if between the denial and the sentence the worker occupied a position incompatible with the disability, the arrears do not start from the denial but from when he left that job. But in the general case, retroactive payments can cover two, three or more years of accumulated pension.
What the Supreme Court rules on temporary charges
The debate that the Supreme Court resolves is whether these arrears should be distributed among the different years to which each monthly payment belongs, which was what the appellant worker requested, or be attributed en bloc to the year in which the sentence became final, which was what the Tax Agency defended with the support of the TEAR and the TSJ of Valencia.
The Court applies article 14.2.a) of Law 35/2006, of November 28, on Personal Income Tax, the rule that regulates so-called litigated credits. When the existence or enforceability of a right is being discussed in a judicial process, the returns are considered enforceable in the year in which the resolution becomes final. The key to the Supreme Court’s reasoning is that the permanent disability pension cannot be demanded until there is a ruling. It is not born before. Therefore, all arrears are attributed to the year in which that judgment becomes final, regardless of the years to which each amount corresponds.
The Court distinguishes this case from that of retirement pensions, which according to STS 1089/2018, of June 26, did allow imputation by years because the right arose with the causative event (reaching the retirement age), not with the judicial resolution.
Why does this mean paying more to the Treasury?
The practical consequence is what Ruiz Acosta explains with a direct example. “It is not the same as if they pay you 45,000 euros of retroactive pension effects, you are charged with 15,000 euros in 2023, 15,000 in 2024 and 15,000 in 2025, than being charged with the full 45,000 euros in the fiscal year of 2026,” details the lawyer. “Because, as I say, you are going to end up paying taxes much more, because in the end you would be declaring that in a single year you have generated 45,000 euros.”
The answer is simple and is that personal income tax is a progressive tax, that is, the higher the income in a year, the higher the marginal rate. Spread over three years, those 45,000 euros would be taxed at lower rates. Concentrated in just one, they escalate quickly through the sections and can reach marginal rates of 37% or higher, depending on the autonomous community and the taxpayer’s total income.
The ruling itself recalls that, when the income generation period is greater than two years, the 30% reduction provided for in article 18.2 of the Personal Income Tax Law is applicable, provided that the income is not received on a periodic or recurring basis and the other requirements of the standard are met. For those who collect three or more years of retroactive payments in a single year, this reduction can partially offset the effect of the accumulation.
“It is very important that you take this into account if you have a permanent disability file in court, because in the end you will probably end up with less money than you anticipated,” concludes the lawyer.