Social Security pays about 1.1 million permanent disability pensions every month, but not all of them are taxed the same in the Income Tax return. Those with absolute permanent disability and severe disability are exempt from personal income tax, while total pensioners do have to pay it, although the Treasury recognizes a 33% disability rate, which reduces the tax.
To know whether or not a pension pays personal income tax, we must start from the general rule, which considers these pensions as income from work, just like a salary. This is established in article 17 of the Personal Income Tax Law (you can read it at this link), which includes among them “pensions and passive assets received from the public Social Security regimes and passive classes and other public benefits for situations of disability, retirement, accident, illness, widowhood or similar.”
Furthermore, article 7 of that same law establishes that “the benefits recognized to the taxpayer by Social Security or by the entities that replace it as a consequence of absolute permanent disability or severe disability” will be exempt. In other words, of the four degrees of permanent disability established by the General Social Security Law, only two are exempt from the tax, so both total and partial disability continue to be taxed.
In the case of absolute disability, the worker is disabled for any type of profession or trade, while in severe disability (which is called great disability since Law 2/2025) the worker with permanent disability needs a third person for the most basic acts of life, such as dressing, moving or eating.
When applying the exemption, the law also includes professionals from mutual societies that are alternatives to the self-employed regime, although with a limit (the maximum Social Security benefit), and civil servants from passive classes, who only have it if the injury disqualifies them “completely” for any profession or trade.
The fact that the pension is exempt does not require them to stop working, since these pensioners can do so in activities compatible with their status, as established in article 198 of the General Social Security Law. What has changed is that, since December 22, 2024 and with Law 7/2024, if that job involves registering with Social Security, their pension payment is suspended until they leave it, except for the major disability supplement, which is used to pay the person who takes care of them.
Keep in mind that in the Basque Country and Navarra these rules are set by their own regional tax regulations.
How much personal income tax do total permanent disability pensioners save?
The total permanent disability pension is set, as a general rule, at 55% of the regulatory base, or 75% of the qualified total, which is recognized from the age of 55 to those who have difficulty finding another job, as reported by Social Security on its website.
Article 60 of the Personal Income Tax Law establishes “a degree of disability equal to or greater than 33 percent” to those who receive the full amount (also those with absolute and severe disability), which gives the right to a minimum disability of 3,000 euros per year, which article 84 of the Personal Income Tax Regulation also takes into account when calculating the monthly pension withholding.
In this way, the pensioner pays about 285 euros less per year in the state part of the tax, which is 9.5% of those 3,000 euros according to the scale of article 63 of the law, to which is added the reduction in the regional part. The figure may be somewhat higher if you have dependent children and lower if your income barely exceeds the minimum.
The Treasury only charges personal income tax for 70% of partial disability
The fact of collecting a permanent partial disability does not mean paying personal income tax on everything you receive. In the case of this compensation of 24 monthly payments, which is collected at once, only 70% is taxed, so that the rest is left out due to the reduction of article 18.3 of the Personal Income Tax Law.
If the total disability is recognized by sentence, the arrears are declared suddenly in the year in which that sentence is final and not in the years to which they correspond, by article 14 of the Personal Income Tax Law (which was confirmed by the Supreme Court in the case of a cashier with breast cancer). Those with absolute and severe disability remain exempt, even if they are recognized by a judge.
Social Security denies permanent disability to a hairdresser with asthma who is prohibited from using dyes and hair sprays, after a respiratory test came back normal, and the court ends up recognizing her five years later
Social Security denies permanent disability to a domestic worker with osteoarthritis in both knees and numbness in her hands, but justice recognizes her
Furthermore, those who only collect the Social Security pension do not have to file the Income Tax return if it does not exceed 22,000 euros per year, the limit for a single payer in article 96 of the law. What changes is the limit if you also work, since it drops to 15,876 euros when the second payer pays you more than 1,500 euros per year.