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 2021, EUR 0.84 was equal to USD 1. In that year the average worker earned EUR 34 032 (Secretariat estimate).
1.1. Central government income tax
1.1.2. Tax allowances and tax credits
1.1.2.2 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 As from 01/07/2020 the EUR 960 fiscal bonus is not in force and has been replaced by a EUR 1 200 payable tax credit for net income under EUR 28 000.
The payable tax credits amount for 2021 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:
As from 01/01/2021 the additional non refundable tax credit, previously temporary, has become permanent for employees with PIT income level over 28,000 euros, starting from an amount of 1200 euros and decreasing gradually to 960 euros at 35,000 euros of PIT income level. Above 35,000 the tax credit amount decreases gradually, down to 0 at 40,000 euros of PIT income level.
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:
The child tax credit is calculated as a function of net income:
for families with only one child: 950*(95 000-taxable income)/95 000;
for families with more than one child the amount of 95 000 is increased by 15 000 for each child other than the first, for every children (including the first one).
Families with more than 3 children receive an additional tax credit of EUR 200 per child.
Families with more than 3 children receive a refundable tax credit of EUR 1 200 (per family).
A lone parent receives an actual tax credit for the first child equal to the maximum of the spouse tax credit and the child tax credit.
Tax credits for children have to be equally shared between the parents; different shares are no longer allowed.
If the spouse’s tax liable net of the PAYE tax credit is less than his/her share (50%) in the child tax credit, the entire child tax credit is provided to the principal earner.
1.1.2.3 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 2020 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 2020 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 (up to EUR 2 100);
Most veterinary expenses that exceed EUR 129.11 (up to EUR 387.34).
For the following expenses, a tax credit of 26% of each incurred expense is allowed:
1.1.3. Tax schedule
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 individual income tax IRPEF (imposta sul reddito delle persone fisiche).
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 2016 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. As from 2017 a progressive tax schedule is applied to taxable income:
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%.
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 2015 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.
2.2. Employer contributions
Contributions equal 31.58% on earnings up to EUR 103 055. For earnings exceeding EUR 103 055, the employer pays a fixed amount given by 0.3158 x 103 055.
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.
3.1. Amount for spouse and for dependent children
Cash transfers are granted for family income that is:
Family income is the sum of the incomes of all individuals comprising the family.
Cash transfers are determined each year by INPS (Istituto Nazionale di Previdenza Sociale), the public body that collects and manages the social security contributions for dependent workers for the period beginning in July of that year (t) to June in the following year (t+1) and relate to family income earned in the previous year (t-1).
As such, the transfers granted in any given year t are determined by the family income in the previous two years. The following table provides a description of the calculations.
For the purposes of Taxing Wages, the cash transfers that are calculated represent those amounts that would be received by the family based on their incomes for that year even though these amounts would only begin to be paid in July of the following year.
The amounts provided for the period July – December 2021, (on the basis of 2020 family income), have been temporary increased in the extent of 37,50 euros for each child in case of a family with less than 3 children and 55 euros for families with 3 or more children.
The temporary additional PAYE tax credit introduced from 01/07/2020 until 31/12/2020 has become permanent as from 2021.
4.1. Changes to labour taxation due to the COVID pandemic in 2020 and 2021
The changes above do not concern the COVID-19 pandemic. As concerns COVID-19 measures, a suspension of SSCs and withholding PIT payments due by December 2020 has been introduced. The allowance is applied to employers with a revenues level under 50 million euros in 2019, if revenues in November 2020 decreased of at least 33% compared to November 2019. The suspension holds independently from size for tax-payers operating in the most hit sectors as well as activities started after November 2019. Payments are due by March 2021.The same measure is applied to March and April payments, (due by January 2021).
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 2020 are mostly repeated for each individual of a married couple. But the spouse credit is relevant only to the calculation for the principal earner and any child credit which the spouse is unable to use is transferred to the principal. This is shown by the Range indicator in the table below.
The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names 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.