Labour Cost: tax-wedge cut-off on employee’s earnings, first measures published

Prepared by Marzio Scaglioni and Paola Barresi

On April 5th, 2020 took effect the Law no. 21/2020, converting Law Decree no. 3/2020, concerning “Urgent actions in order to reduce the tax burden on employees” published in the Italian Official Gazette on April 4th, 2020.

A few months later the enactment of the so-called “2020 Budget Law”, which provided for the constitution of the “Fund for the reduction of the tax burden on the employees” with an endowment of 3 billion euros for year 2020 (and 5 billion euros from 2021), the first programmatic action measures with the declared purpose of reducing the tax wage burdening on employee’s salaries was therefore adopted.

The overall regulatory reform is based on the adopting of several formal and substantial revision measures of the so-called Bonus Renzi (already regulated by art. 1, Law Decree no. 66/2014, converted with amendments by law no. 89/2014), which will be applied for employment activities rendered starting from July 1st, 2020.

In this scenario, if on the one hand, the predicted so-called Bonus Renzi (art. 13, paragraph 1-bis, TUF) will maintain its full operation until June 30th, 2020 according to the rules hitherto known and already applied, on the other hand, starting from July 01st, 2020 – and in connection with the repeal of the aforementioned regulation – two new income supporting measures will be implemented, affecting more than 16 million of Italian employees, with individual incomes up to € 40.000 (as taxable base).

More in detail, for the employees who have an overall gross income not exceeding € 28.000 per tax period, it has been foreseen the so-called “Supplementary treatment”, with an overall amount equal to € 1.200 on yearly basis, therefore compare to € 600 starting from July up to December 2020.

As already provided for the so-called Renzi Bonus, the new “Supplementary treatment” – also intended to be translated into an IRPEF credit – must be recognized by the employers / withholding agents with a breakdown between the wages paid, without prejudice to the possibility of recovery of any treatment not due on the occasion of tax adjustment transactions.

On the other hand, for individuals with an employee income (and / or some assimilated income) whose total amount is between € 28,000 and € 40,000 is introduced – up to now for the months of July-December 2020 only, in view of a announced structural revision of the tax deduction system – a new equivalent tax deduction, for an overall value corresponding to an annual amount equal to € 480 apportioned, the value of which is quantified, according to the amount of the total income, decreasing to gradually decrease continues to a definitive zeroing a once the € 40,000 threshold is reached.

As foreseen for the new “Supplementary treatment”, the tax deduction reserve – which by its nature will upset its effects on the relevance imposed by workers – must be recognized by employers / withholding agents, with full division between the wages paid from July to December 2020 and without prejudice to the possibility of recovery in the event of non-payment.

In operational terms, two income support items will coexist in fiscal year 2020, to be balanced according to different rules for the first and second semesters; overall, there will be a slight increase in the tax deduction for employees, while the same measure will be neutral regarding employer’s labour cost.

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For a deeper discussion, please contact:

Gianluigi Baroni

PwC TLS Avvocati e Commercialisti


Marzio Scaglioni

PwC TLS Avvocati e Commercialisti