Published on June 11, 2025, COSIT Ruling No. 85/2025 deals with the tax treatment of amounts paid as compensation for time off and concludes that they are remunerative nature and, therefore, subject to withholding income tax, social security contribution, RAT contribution, and contributions to third parties.
According to the understanding expressed in the Ruling, the payment of these amounts constitutes additional remuneration for work performed on days that were initially intended as paid time off, regardless of whether the payment is made in multiples, such as in the case of the need for operational continuity (as occurs with the double shifts), or on a one-time basis, such as for employer-mandated training.
Although this interpretation is controversial and contrary to consistent decisions of the Superior Court of Justice (STJ) recognizing the indemnity nature of these amounts, the COSIT Ruling is has a binding effect on the consultant and within the scope of the Brazilian Federal Revenue Service (RFB).
Given this scenario, each company should review its policy on the payment and taxation of “indemnified time off”, assessing possible tax risks and the need for adjustments to its payroll.