Italy
This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.
Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.
The national currency is the Euro (EUR). In 2022, EUR 0.96 was equal to USD 1. In that year the average worker earned EUR 33 855 (Secretariat estimate).
1.1. Central government income tax
1.1.2. Tax allowances and tax credits
Tax credits
Italy increased the basic employee tax credit from EUR 1 840 to EUR 1 880 and as from 2014 introduced an additional refundable tax credit of EUR 960 for employees with income between EUR 8 146 and EUR 24 600, with a phase-out for income between EUR 24 600 and EUR 26 600. As from 01/07/2020 the EUR 960 fiscal bonus is not in force and has been replaced by a EUR 1 200 payable tax credit for net income under EUR 28 000, while an additional tax credit was assigned for incomes from 28 000 to 40 000 euros.
As from 2022, Budget Law n. 234/2021 modified the Personal Income Tax (IRPEF). The payable tax credits amount for 2022 is 1 200 EUR for net income under 15 000 EUR.1
The payable tax credits amount for 2022 has to be estimated as follows:
The PAYE tax credit is defined as a function of net income:
The maximum value for the tax credit depends on the level of taxable income:
An additional maximum credit amount of 65 EUR applies to taxable income from 25 000 up to 35 000 EUR.
The tax credits for family dependants, which have replaced the former tax allowances, are as follows:
The spouse tax credit is calculated as a function of net income:
As from 1/1/2022 the tax credit for children under 21 years old, the previous family allowance, and some minor measures to support households have been replaced by the new family allowance (the ‘Assegno Unico e Universale’), while for children over 21 years old the previous family allowance still applies. Please see section Cash Transfers for details.
Main non-standard tax allowances and tax credits
Periodical benefits allowed to the spouse fixed by judicial authority;
Charitable donations to certain religious institutions (up to EUR 1 032.91);
Medical and assistance expenses incurred by handicapped persons;
Expenses to restore one's own residence at 50% for 2021 of full expenses up to EUR 96 000, apportioned into 10 annual allowances of the same amount;
Expenses for energy requalification of buildings at 65% for 2021 of full expenses apportioned into 10 annual allowances of the same amount;
Expenses for the replacement of covers, windows and shutters and for the installation of solar panels (only for hot water production) at 50% of full expenses.
For the following expenses, a tax credit of 19% of each incurred expense is allowed:
Expenses to attend secondary school and university courses; in case such courses are private, the expenses allowed cannot exceed those foreseen for State courses;
Expenses related to sport activities for children between 5 and 18 years of age (up to EUR 210 per child).
Personal assistance for non-self-sufficient people if taxable income is under 40 000 EUR (up to EUR 2 100);
Most veterinary expenses that exceed EUR 129.11 (up to EUR 550).
For the following expenses, a tax credit of 26% of each incurred expense is allowed:
1.1.3. Tax schedule
As from 2022, Budget Law n. 234/2021 reduced both the number of brackets (from 5 to 4), the number of the tax rates to apply (from 5 to 4) and the central tax rates levels. The following tax schedule is applied to taxable income:
Decree-Law n. 138 of 13th August 2011 introduced the “Contributo di Solidarietà” for the 2011-2013, (extended up to 2016), tax periods, that is a 3% “solidarity contribution” on the portion of income higher than EUR 300 000 (the amount paid is deductible from PIT base)”. As from 2017 the “Contributo di solidarietà” measure is not in force.
1.2. State and local taxes
These surcharges are due only by taxpayers who pay the PIT (personal income tax).
1.2.1. Regional surcharge tax
This surcharge tax has been introduced in 1997. The tax is levied by each region on resident taxpayers’ total taxable income at a discretionary rate, which must fall within an established range. As from the year 2000 this range is 0.9% – 1.4%.
In December 2011, with the DL 201/2011, the minimum state rate has been increased from 0.9% to 1.23%.
The figure given in the 2022 parameter values table under the heading “Regional and local tax” includes the regional surcharge tax paid in the most representative city which is Rome (Lazio); the rate is 3.33% for taxable income bracket over EUR 15 000 and 1.73% for income under EUR 15 000. Nevertheless, if the taxable income is under the threshold of EUR 35 000 the rate applicable to the total amount of taxable income is 1.73%.
1.2.2. Local surcharge tax
This surcharge tax has been introduced in 1999. The tax may be levied by each local government at an initial rate that cannot exceed 0.2%. If the tax is levied, the local government can increase the initial rate, on a yearly basis, up to a maximum of 0.5%. Each yearly increase cannot exceed 0.2%. As from 2012, municipalities can increase the rate up to 0.8.
A 0.9 special rate can be introduced by Roma Capitale Local Government.
The figure given in the 2022 parameter values table under the heading “Regional and local tax” includes the local surcharge tax paid in the most representative city which is Rome; the rate is 0.9% as from 2015.
Starting from 2011, exemption is provided to taxpayers whose total income consists of retirement income not exceeding EUR 7 500, income from land not exceeding EUR 185.92, and income from primary residence. As from 2015 the rate is not applied to taxpayers with income under EUR 12 000. The ordinary rate is applied if any one of these limits is passed.
The surcharge rates can be adjusted above the fixed roof because of the health care losses.
2.1. Employee contributions
The average rate is 9.49% on earnings up to EUR 48 279; However a temporary decrease in rate of social security contributions from 9.49% to 8.69% (-0.8 p.p.) applies for employees having income up to 35,000 euros. The measure is in force from 1/1/2022 until 31/12/2022.
The average rate is 10.49% on earnings over EUR 48 279 and up to EUR 105 014;
For earnings exceeding EUR 105 014, the employee pays a fixed amount given by (0.0949 x 48 279) + 0.1049 x (105 014 – 48 279).
2.2. Employer contributions
Contributions equal 31.58% on earnings up to EUR 105 014. For earnings exceeding EUR 103 055, the employer pays a fixed amount given by 0.3158 x 105 014.
A General Government employer work-related accident insurance exists in Italy. It is compulsory for employers with employees and contract workers in activities involving the use of machinery and in risky activities as defined by the law. The standard premium to be paid is calculated by applying to remuneration the rates linked to the activity in which the employee works. The rates that vary between 0 to about 13% are provided by a special classification that takes into account the different categories of risk between the various activities. It is not possible to provide a representative or average rate since the contribution rates vary depending on the industrial activities and also other factors of risk. Those contributions are not included in the Report.
As from 1/1/2022 the tax credit for children under 21 years old, the previous family allowance, and some minor measures to support households have been replaced by the new family allowance (the ‘Assegno Unico e Universale’). This is a single and universal allowance for children from the 7th month of pregnancy until 21 years old, consisting in a monthly cash-transfer calculated on the ISEE (i.e. equivalent economic status indicator), an index accounting both for taxable and exempt income and for real estate and financial wealth, made equivalent using a scale accounting for the number of components, the disability of children, and the working status of parents2.
The ‘Assegno Unico e Universale’ follows a progressive scheme, implying a maximum amount (175 EUR per month for minors; 85 EUR for adult younger than 21 years) for households with less than 15 000 EUR of ISEE, and a dècalage until a minimum amount (50 EUR per month for minors; 25 EUR for adult younger than 21 years) for ISEE greater than 40 000 EUR3. It also provides additional bonus for children with disability, large households, and young mother (younger than 21 years).
The following table shows computations for different family schemes to be entitled to the universal family allowance: in this simulation the ISEE solely takes into account labour income with no additional information on wealth and real estate.
As from 2022, Budget Law n. 234/2021 modified the Personal Income Tax (IRPEF). The tax brackets passed from 5 to 4, with different thresholds, the central tax rates decreased and the employment tax credits increased (with a modification of the refundable fiscal bonus of 100 euros).
The tax credit for children and the previous family cash transfer (plus some minor measures4) to support households have been replaced by a single and universal allowance, in most cases more generous than the previous benefits.
A decrease in rate of social security contributions from 9.49% to 8.69% (-0.8 p.p.) applies for employees having income up to 35,000 euros. The measure is temporary, in force from 1/1/2022 until 31/12/2022 and does not apply to domestic workers.
Tax schedule of the regional tax in Lazio has been modified.
5.2. Contributions by employers to private pension, health, etc. schemes
In addition to the mandatory social security contributions employers may pay contributions to private pension schemes (currently about forty pension funds). Employer’s contributions are included in the taxable income of the employee.
Employees may also choose to contribute to the pension funds with all or part of the retirement allowance that is otherwise withheld by the employers. In this case the employee can deduct from his taxable income an amount equal to twice the amount of the contribution paid to fund.
Employer’s contributions to private health insurance schemes are not included in the taxable income of the employee up to the limit of EUR 3 615.20.
The equations for the Italian system in 2021 are mostly repeated for each individual of a married couple. But the spouse wariable namews are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.
Notes
← 1. If the income is between 15 001 and 28 000, the 100 euros can be assigned whether the tax credit for employee is lower than the difference between the tax liability and the tax credits for dependents (plus other minor tax credits). These tax credits are those listed in art 15 comma 1, letter a), b), c), comma 1-ter, and art. 16-bis of the TUIR. For more details see art. Law n. 234/2021, art 1, comma 3, letter a).
← 2. To calculate the tax wedge for the stylized OECD households, we calculate the ISEE based on the taxable income only, not being able to make hypothesis on the wealth.
← 3. To calculate the tax wedge for the stylized OECD households, we assume children are under 18 years old and without disabilities.
← 4. The minor measures were not affecting the TW calculations.