Prepared by Marzio Scaglioni and Antonio Giardina
On December 31, 2024, Budget Law No. 207/2024 (“Budget Law 2025”) was published in the Official Gazette No. 305, which regulates the “State Budget for the financial year 2025 and multi-year budget for the three-year period 2025-2027“. This article summarizes some of the main payroll news.
Structural Reduction of withholding tax employment rates and new deduction rules
Article 1, paragraphs 2 to 9, confirms the reduction from four to three employment tax rates (23%, 35%, and 43%) (hereinafter also “IRPEF”) already planned for 2024. Additionally, the deduction threshold for employment income for incomes below 15,000 euros is increased, consequently adjusting the amount of deductions to be considered in the year to evaluate the eligibility for the supplementary treatment provided for employment incomes below a certain threshold. The legislator also intervened on the deduction for dependent children. Indeed, starting from 2025, it applies exclusively to children under 30 years of age, except in the case of certified disability (paragraph 11, letter a), no. 1)).
Reduction of the employment tax wedge
The 2025 budget law marks the end of the contributory exemption that provided for a 6%-7% cut in the employee’s social contributory share to make way for a new benefit. For employment incomes up to 20,000 euros, an amount that does not contribute to the formation of income is recognized, calculated on a decreasing percentage basis as income increases. For incomes between 20,000 and 40,000 euros, a fixed amount contribution of 1,000 euros is recognized for incomes up to 32,000 euros, and a decreasing amount for incomes above 32,000 euros until it is zeroed at the threshold of 40,000 euros. These amounts are automatically recognized by the tax substitutes, who offset the accrued credit at the time of salary disbursement, verifying its eligibility during the settlement and recovering any undue amounts.
New Tax Regime for Company Cars Granted for Mixed Use
Paragraph 48 modifies the taxation rules for employment income in cases of granting mixed-use vehicles, motorcycles, and mopeds to employees, providing that 50% of the amount corresponding to a conventional mileage of 15,000 kilometers contributes to the formation of income. This percentage is reduced to 10% for battery-powered electric vehicles and 20% for plug-in hybrid electric vehicles. The new provisions apply to contracts signed from January 1, 2025.
| Type of Vehicles Based on Fuel Type and Fringe Benefit Determination Percentage | Benefit in kind’s determination Percentage |
| All vehicles (except those listed below): | 50% |
| Battery-powered electric vehicles | 10% |
| Plug-in hybrid electric vehicles | 20% |
It is therefore evident that for traditionally powered cars (i.e., powered exclusively by an internal combustion engine), the legislator has provided for a higher tax burden and therefore also an increase in labor costs.
Further Extension of Parental Leave
Paragraph 217 makes the following changes to Article 34, paragraph 1, first period, of the consolidated text of legislative provisions on the protection and support of maternity and paternity, as per Legislative Decree No. 151 of 2001:
- Letter a) makes structural for employees from 2025, the increase to 80% (previously planned only for 2024) of the salary of the leave allowance, for the second month within the sixth year of the child’s life, instead of the increase to 60% previously planned.
- Letter b) raises from 30% to 80% the third month of maternity or paternity leave for employees within the sixth year of the child’s life.
Paragraph 218 establishes that the provisions of paragraph 1 apply respectively to workers who have completed or complete the period of maternity or, alternatively, paternity leave, as per Chapters III and IV of the aforementioned consolidated text, after December 31, 2023, and December 31, 2024.
The full implementation of this measure is subject to the subsequent issuance of appropriate circulars by the competent institutions, which will also provide instructions on the recovery of the relief for the months for which the benefit in question was not used.
New Social Contribution Option for New Enrollees in the (so-called in Italian “AGO”)
Paragraph 169 allows those enrolled in the mandatory general social security insurance (“AGO”), or within the special fund for self-employed workers, with the first contributory credit after January 1st, 2025, to increase the individual contributory amount by paying to Italian Social Security Institute (so called in Italian “INPS”) an increase in the pension contribution rate at their own expense not exceeding two percentage points. The contributions paid are deductible from the total income only for 50% of the total amount paid. Specifically, the implementation of this measure is delegated to a subsequent Ministerial Decree.
Increase in the Tax and Social Contribution Exemption Threshold for benefit in kind also for 2025
Paragraphs 390 and 391 confirm for an additional three years (i.e., 2025, 2026, and 2027), a more favorable regime regarding the exclusion from the taxable income of the worker for goods provided and services rendered to the worker (so-called fringe benefits). The exemption limit is raised to 2,000 euros for workers with dependent children and to 1,000 euros for other workers. The exemptions also concern the taxable base of social security contributions.
Social Contribution Exemption for mothers of two or more children
Paragraph 219 grants employed and self-employed workers, mothers of two or more children, an exemption from the share of social security contributions for invalidity, old age, and survivors (the so-called in Italian “IVS”) at the worker’s expense, until the month of the youngest child’s tenth birthday. Starting from 2027, for mothers of three or more children, the exemption is granted until the month of the youngest child’s eighteenth birthday. The full implementation of this measure is subject to the subsequent issuance of appropriate circulars by the competent institutions, which will also provide instructions on the recovery of the relief for the months for which the aforementioned contributory benefit was not used.
Social Contribution Relief for Companies Located in Southern Italy
This measure reintroduces a contributory relief (subject to the necessary conditions) already provided in past years for the southern regions. More specifically, paragraphs 406 to 412 grant an exemption from the payment of social security contributions (excluding work insurance premiums and contributions due to competent institute) limited to micro, small, and medium-sized enterprises (up to 250 employees) that employ permanent workers in the aforementioned regions. This relief is granted within the limits of European state aid regulations.
Alternatively, paragraphs 413 to 421 grant an exemption from the payment of social security contributions (excluding work insurance premiums and contributions due to competent institute) in favor of private employers who do not fall within the definition of micro, small, and medium-sized enterprises provided by current regulations and who employ permanent workers in the regions of Abruzzo, Molise, Campania, Basilicata, Sicily, Puglia, Calabria, and Sardinia. This relief is subject to the authorization of the European Commission and is suspended until the adoption of the decision and is granted on the condition that the employer demonstrates an increase in permanent employment relationships compared to the previous year as of December 31 of each year.
The full implementation of this measure is subject to the subsequent issuance of appropriate circulars by the competent institutions, which will also provide instructions on the recovery of the relief for the months for which the aforementioned contributory benefit was not used.
| Year | Percentage | Maximum Amounts | Recepients |
| 2025 | 25% of total social security contributions | 145 euros monthly for 12 months | Each worker hired permanently as of December 31st, 2024 |
| 2026 | 20% of total social security contributions | 125 euros monthly for 12 months | Each worker hired permanently as of December 31st, 2025 |
| 2027 | Each worker hired permanently as of December 31st, 2026 | ||
| 2028 | 100 euros monthly for 12 months | Each worker hired permanently as of December 31st, 2027 | |
| 2029 | 15% of total social security contributions | 75 euros monthly for 12 months | Each worker hired permanently as of December 31st, 2028 |
Reduced Substitute Employment Tax for performance Bonuses paid to Employees
Paragraph 385 – resuming a measure already in force during 2024 – extends to bonuses and amounts paid in the years 2025, 2026, and 2027 the temporary reduction from 10 to 5 percentage points of the substitute tax rate of IRPEF and the related regional and municipal surcharges, concerning certain remuneration elements, consisting of performance bonuses and forms of profit-sharing.
Exemption regime to travel expenses applicable only in case of using electronic pay methods
Paragraph 81 modifies the Presidential Decree of December 22, 1986, No. 917 by limiting the deductibility of certain types of expenses, for income tax purposes, only if made with traceable payment methods. Specifically, paragraph 81 modifies the consolidated text of income taxes, as per the Presidential Decree of December 22, 1986, No. 917: with the new formulation, it is established that the allowances received for travel or missions outside the municipal territory, accommodation, and meal expenses, specify that the reimbursements of expenses for meals, accommodation, travel, and transport, made through non-line public transport services as per Article 1 of Law No. 21 of 1992 (taxi service and rental service with driver), do not contribute to the formation of income if the aforementioned expenses are made with traceable methods, i.e., with bank or postal payment or through other payment systems provided for by Article 23 of Legislative Decree No. 241 of 1997 (debit, credit, and prepaid cards, bank and cashier’s checks).
Conversely, where company policies or collective contract provisions provide for the reimbursement of travel expenses and these are incurred through non-traceable payment methods, the latter are considered taxable from a tax and contribution perspective, also generating an increase in labor costs for companies.
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