Christmas bonuses under $ 415.20 don't pay rent

El Salvador’s Congress approved the exemption of income tax to taxpayers who receive a Christmas bonus under $ 415.20, which is equivalent to two minimum wages on the trade and services sector.

Monday, December 6, 2010

According to Article 1 of that mentioned decree "Notwithstanding the provisions of the Income Tax Law and the Tax Code, for the current year are exempted from withholding and payment of income tax, all incomes received by way of Christmas bonus to workers covered by the Labor Code and the Additional Cash up Compensation Act to an amount not to exceed two times the minimum wage on trade and service sector.

State and private employees to be included in that range will receive the full bonus. This measure is part of a tax reform “package” adopted by the Salvadoran Congress on Thursday, December 2th, 2010.

If Christmas bonus is paid by the company before the referred decree enters in force, Tax Code may be applied, meaning to say that thee is no obligation for the company to deduct from the employees income tax when paid according to the minimum amounts (paid for Christmas bonus) established by article 198 of the Labor Code. Christmas bonus paid over those minimums will be subject to deduction. In this case, it is not about an exception but about “not obligating” the company to deduct income tax from the employee. The obligation for the employee to include this income in the yearly income tax statement remains.

It is still pending the decision to be taken by President Funes, who can confirm, observe or veto the decree.

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