Article 20 Law 35/2006: Work Income Reduction (2026)

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What is Article 20 of Law 35/2006?

Article 20 of Law 35/2006 (Spanish Income Tax Law - IRPF) establishes a reduction for obtaining work income. It is a tax benefit designed to ease the tax burden for low and middle-income workers.

This reduction is applied directly to net work income, reducing the base on which income tax is calculated. In practice, this means paying less taxes if you meet the requirements.

📌 Official source: BOE-A-2006-20764 - Law 35/2006, of November 28, on Personal Income Tax.

Requirements to apply the reduction

To benefit from this reduction you must meet two conditions:

1. Net work income limit

Your net work income must be below €19,747.50 annually.

Net income is calculated as follows:

Net income = Gross income - Deductible expenses (Art. 19.2 a-e)

Deductible expenses under Article 19.2 include:

• a) Social Security contributions
• b) Passive rights deductions
• c) Orphan fund contributions
• d) Union and professional association fees (with limits)
• e) Legal defense expenses (up to €300)

⚠️ Important: The €2,000 for "other expenses" (letter f of article 19.2) is not subtracted when calculating the Article 20 limit.

2. Other income limit

You cannot have income other than work income exceeding €6,500 annually (excluding exempt income).

This includes:

• Investment income (interest, dividends)
• Real estate income (rentals)
• Business activity income
• Capital gains

If you have other income exceeding €6,500, you cannot apply this reduction, regardless of your salary.

Reduction amounts

The reduction varies according to your net work income level. There are three brackets:

Bracket 1: Income ≤ €14,852

Fixed reduction: €7,302 annually

If your net work income is equal to or below €14,852, you apply the maximum reduction.

Example: With €14,000 net income, the reduction is €7,302.
Net income after reduction = €14,000 - €7,302 = €6,698

Bracket 2: Income between €14,852 and €17,673.52

Decreasing reduction

The formula is:

Reduction = €7,302 - 1.75 × (Net income - €14,852)

Example: With €16,000 net income:

• Difference: €16,000 - €14,852 = €1,148
• Reduction: €7,302 - (1.75 × €1,148) = €7,302 - €2,009 = €5,293
• Net income after reduction = €16,000 - €5,293 = €10,707

Bracket 3: Income between €17,673.52 and €19,747.50

Minimum decreasing reduction

The formula is:

Reduction = €2,364.34 - 1.14 × (Net income - €17,673.52)

Example: With €18,500 net income:

• Difference: €18,500 - €17,673.52 = €826.48
• Reduction: €2,364.34 - (1.14 × €826.48) = €2,364.34 - €942.19 = €1,422.15
• Net income after reduction = €18,500 - €1,422.15 = €17,077.85

Income ≥ €19,747.50

No reduction

If your net work income equals or exceeds €19,747.50, you are not entitled to this reduction.

Reduction summary table

Limit: the balance cannot be negative

The Law expressly states:

"As a consequence of applying the reduction provided in this article, the resulting balance cannot be negative."

This means that if your net income is less than the reduction you would be entitled to, the reduction is limited to the amount of net income.

Example: If your net income is €5,000, the maximum reduction would be €5,000 (not €7,302), leaving net income at €0.

Recent modifications to Article 20

Article 20 has been modified several times to adapt to inflation and protect workers with lower incomes:

Relationship with other IRPF articles

Article 20 connects with other key articles of Law 35/2006:

• Article 17: Defines what gross work income is
• Article 19: Establishes deductible expenses to obtain net income
• Article 32: Similar reduction for self-employed with business activity income

Complete practical example

Let's look at a real case of how Article 20 is applied:

Situation: María, employed worker

• Annual gross salary: €22,000
• Social Security contributions: €1,430 (6.50%)
• No other income

Calculation:

1. Gross income: €22,000
2. Deductible expenses (Art. 19.2 a-e): €1,430 (SS)
3. Net income for Art. 20: €22,000 - €1,430 = €20,570

❌ Since €20,570 > €19,747.50, María CANNOT apply the Article 20 reduction.

Another situation: Pedro, employed worker

• Annual gross salary: €18,000
• Social Security contributions: €1,170 (6.50%)
• No other income

Calculation:

1. Gross income: €18,000
2. Deductible expenses (Art. 19.2 a-e): €1,170 (SS)
3. Net income for Art. 20: €18,000 - €1,170 = €16,830

✅ Since €16,830 < €19,747.50 and has no other income > €6,500, Pedro CAN apply the reduction.

4. Reduction calculation (Bracket 2):
   • Reduction = €7,302 - 1.75 × (€16,830 - €14,852)
   • Reduction = €7,302 - 1.75 × €1,978
   • Reduction = €7,302 - €3,461.50 = €3,840.50
5. Final net income: €16,830 - €3,840.50 = €12,989.50

Pedro is taxed on €12,989.50 instead of €16,830, which represents a significant tax saving.

Impact on minimum wage and low salaries

This reduction is especially relevant for workers earning the Minimum Interprofessional Wage (SMI) or similar salaries:

• The 2026 SMI in 14 payments is approximately €15,876 gross/year
• After subtracting contributions (~€1,032), net income is ~€14,844
• Being below €14,852, the maximum reduction of €7,302 applies

This means minimum wage workers practically pay no income tax or pay a very reduced amount.

How is it applied in practice?

In the payslip (withholdings)

Your company takes this reduction into account when calculating the income tax withholding rate on your payslip. That's why low-salary workers may have 0% or very low withholdings.

In the tax return

The Tax Agency verifies in the annual return that you meet all requirements:

• Your total net work income
• That you don't exceed the other income limit (€6,500)

If during the year you had other income exceeding the limit, you might have to return part of the unpracticed withholdings.

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