Prepared by Francesca Tironi, Marzio Scaglioni, Giulia Spalazzi, Leila Rguibi, Antonio Giardina, Alessia Brambilla
On December 30th, 2025, Budget Law no. 199/2025 (the “2026 Budget Law”) was published in the Official Gazette no. 301, setting out the “State Budget Forecast for fiscal year 2026 and multi-year budget for the 2026–2028 triennium”. The new provisions are contained within the 973 paragraphs of Article 1 of the 2026 Budget Law.
This document provides a non-exhaustive summary of the key employment and payroll-related changes introduced by the above-mentioned budget law. Please note that certain provisions will be subject to implementing decrees and/or interpretative circulars from the relevant labor authorities, as well as necessary technical updates to payroll systems.
Increase in tax exemption threshold for electronic meal vouchers
Paragraph 14 of the 2026 Budget Law introduces a significant change to the tax treatment of electronic meal vouchers.
Specifically, the tax exemption threshold for electronic meal vouchers has been increased from € 8 to € 10 per voucher. Any value exceeding € 10 per electronic meal voucher will continue to be treated as taxable income and, accordingly, subject to taxation and social security contributions.
Extension of parental leave
Paragraph 219 introduces significant amendments to Articles 32, 33, 34, and 36 of the Law on maternity and paternity protection and support (Legislative Decree no. 151/2001).
In particular, 2026 Budget Law extends the period during which parents may take parental leave, raising the child’s age limit from 12 to 14 years. The overall duration of parental leave entitlement and the existing economic conditions remain unchanged.
Leave for child illness
Paragraph 220 of the 2026 Budget Law partially amends the provisions governing leave for child illness, modifying Article 47, paragraph 2, of Legislative Decree no. 151/2001.
The new provisions double the annual unpaid leave days available to parents for caring, for sick children, increasing the entitlement from 5 to 10 days per calendar year.
Furthermore, in line with the extension already provided for parental leave, working parents may now take this leave until the child reaches 14 years of age, raised from the previous limit of 8 years. The procedures for taking child illness leave remain subject to the conditions set out in current legislation.
Priority in converting full-time employment contracts to part-time
Paragraphs 214 to 218 of the 2026 Budget Law introduce a measure in favor of employees with at least 3 children, granting them priority when requesting the conversion of their employment contract from full-time to part-time (either horizontal or vertical), or, alternatively, when requesting a recalculation of the part-time percentage for existing part-time arrangements, provided that the working hours are reduced by at least 40%.
The request may be submitted until the youngest child reaches 10 years of age, or without age limits if one of the children has a disability.
Where the employer accepts such a request, provided there is no reduction in the company’s total working hours, a full exemption from employer social security contributions (excluding INAIL premiums and contributions) is granted for a maximum period of 24 months from the contract conversion or schedule adjustment, up to a maximum of € 3,000 per year, calculated on a monthly basis. The computation rate for pension benefit purposes remains unchanged.
The operational and implementation procedures for this measure will be defined by an inter-ministerial decree to be adopted within 180 days from the entry into force of 2026 Budget Law.
Bonus for deferred retirement
Paragraph 194 of the 2026 Budget Law extends for 2026 the measure incentivizing the deferral of retirement, originally introduced by the 2023 Budget Law.
Employees who meet the requirements for early retirement pension by December 31st, 2026, may choose to remain in service. By opting for this arrangement, the employee may request that the employer pay directly in the paycheck an amount corresponding to the employee’s share of social security contributions, which, instead of being remitted to the pension institution, will be recognized as a net payment to the employee.
Payment of severance indemnity (“TFR”) to the INPS Treasury Fund
Paragraph 203 extends the obligation to pay TFR (severance pay) to the INPS Treasury Fund, previously applicable only to employers who reached the 50-employee threshold during 2006 or in their first year of business, to all companies that subsequently reach the specified headcount threshold.
For 2026 and 2027, the obligation applies only to employers with an annual average of at least 60 employees. From January 1st, 2032, the threshold will be permanently lowered to an annual average of 40 employees.
TFR Allocation and Supplementary Pension Schemes
Paragraphs 204 and 205 significantly amend, effective July 1st, 2026, the mechanism for allocating TFR for private sector employees.
An automatic enrollment system for supplementary pension schemes is introduced, whereby enrollment in the collective pension scheme provided for by collective bargaining agreements occurs automatically upon hiring.
The employee retains, however, the right to opt out of automatic enrollment within 60 days of hiring, choosing either a different supplementary pension scheme or to retain TFR within the company. Employers are required to provide employees with specific information upon hiring to ensure full awareness of the new options and related deadlines.
Additionally, starting from tax year 2026, the annual deduction limit from gross income (IRPEF) for contributions to supplementary pension schemes (whether paid by the employee, employer, or principal, and whether voluntary or required by collective or company agreements) is increased from € 5,164.57 to € 5,300.
Extension of fixed-term contracts for maternity replacement
Paragraph 221 introduces the possibility of extending the duration of fixed-term contracts, including temporary agency contracts, entered into to replace employees on maternity or parental leave pursuant to Legislative Decree no. 151/2001.
Specifically, the extension allows for an additional handover period between the replaced employee and the replacement, provided that the duration does not exceed the child’s first birthday.
Reduction of the Second Employment Tax Bracket Rate (“IRPEF”) from 35% to 33%
The legislation provides for a reduction of the IRPEF rate applicable to the second taxable income bracket (gross income net of deductible expenses)—i.e., income exceeding €28,000 and up to €50,000—from 35% to 33%, with the aim of reducing the tax burden on the so-called “middle class.”
The updated IRPEF brackets and rates are as follows:
- 23% up to €28,000
- 33% (previously 35%) from €28,001 to €50,000;
- 43% over €50,000
The maximum tax savings resulting from this measure amount to €440. This reduction applies on a permanent basis from tax year 2026.
IRPEF Deductions for Expenses Incurred from January 1, 2026 – €440 Reduction for Taxpayers with Income Exceeding €200,000
To offset the maximum tax savings resulting from the reduction of the second IRPEF bracket rate, starting from tax year 2026, taxpayers with gross income exceeding €200,000 will see a €440 reduction in the tax deduction available for certain deductible expenses.
Tax Relief on Performance Bonuses and Profit-Sharing Payments
The following changes apply to performance bonuses and profit-sharing payments:
- The substitute tax rate is reduced from 5% to 1% for 2026 and 2027, with a concurrent increase in the maximum total amount eligible for the substitute tax;
- The tax relief for dividends paid to employees from shares granted in lieu of performance bonuses is extended for 2026.
Reduction of the substitute tax
The substitute tax on performance bonuses and profit-sharing payments, pursuant to Article 1, paragraph 182 et seq. of Law No. 208 of December 28, 2015, paid in 2026 and 2027, is reduced from 5% to 1% within a maximum total limit of €5,000; all other legal parameters remain unchanged.
Extension of dividend relief
The tax relief set forth in Article 6, paragraph 1, third sentence, of Law 76/2025 also applies in 2026 (the relief was originally limited to 2025 only). The measure provides that dividends paid to employees from shares granted in lieu of performance bonuses, up to an annual maximum of €1,500, are exempt from income taxes for 50% of their value.
Substitute Tax on National Collective Labour Agreement Wage Increases
For 2026 only, a substitute tax for IRPEF and related regional and municipal surcharges, equal to 5%, is introduced on wage increases arising from collective bargaining renewals. The employee may opt out of the substitute tax.
The substitute tax applies to wage increases paid to private sector employees in 2026, pursuant to collective bargaining renewals signed between January 1, 2024, and December 31, 2026.
The substitute tax on contractual renewal increases is available to employees with employment income not exceeding €33,000 in 2025.
Substitute Tax on Holiday Work, Night Work, and Other Ancillary Compensation
For 2026 only, a substitute tax for IRPEF and related regional and municipal surcharges, equal to 15%, is introduced on specific ancillary compensation for private sector employees. The employee may opt out of the substitute tax.
The substitute tax is applied by the private sector withholding agent to the following payments made to employees:
- Increase and allowances for night work pursuant to Article 1, paragraph 2, of Legislative Decree 66/2003 and collective bargaining agreements;
- Increase and allowances for work performed on public holidays and weekly rest days, as identified by collective bargaining agreements;
- Shift allowances and other shift-related emoluments provided for by collective bargaining agreements.
Compensation that, although designated as increase and allowances for, wholly or partially replaces ordinary remuneration is excluded from the scope of the substitute tax.
Activities covered by the special supplementary treatment for the tourism sector are also excluded from the substitute tax on ancillary compensation.
The substitute tax is available to employees with employment income not exceeding €40,000 in 2025. The relevant compensation may be subject to the substitute tax up to an annual limit of €1,500.
Standard social security and welfare contribution rules continue to apply, except where otherwise provided by current legislation.
10% IRPEF Surcharge on Bonuses and Stock Options for Executives and Directors in the Financial Sector – Exclusion
A specific exclusion is made from the 10% IRPEF surcharge on bonuses and stock options paid to executives and directors in the financial sector, as provided for by Article 33 of Decree-Law 78/2010.
Specifically, the surcharge does not apply if the entity (company or other organization) paying such variable remuneration makes a payment to Third Sector entities equal to at least twice the total surcharge otherwise due.
In essence, the provision shifts the levy that would have fallen on the executive or director to the company or entity paying the remuneration. All other provisions governing the 10% surcharge, which have been subject to various judicial interpretive rulings, remain in force.
Tax Regime for New Residents – Increase in Substitute Tax
The substitute tax applicable to individuals who transfer their tax residence to Italy and opt for the new residents’ regime under Article 24-bis of the Consolidated Income Tax Code (TUIR) is further increased.
The general flat-rate tax is increased from €200,000 to €300,000, while the tax applicable to family members is increased from €25,000 to €50,000.
These new thresholds apply to individuals who, from January 1, 2026, have transferred their civil residence to Italian territory pursuant to Article 43 of the Civil Code.
Prohibition of Tax Credit Offsetting with Overdue Tax Debts – Threshold Lowered from €100,000 to €50,000
This provision was originally introduced by the 2024 Budget Law, which prohibited tax credit offsetting for taxpayers with outstanding registered tax debts exceeding €100,000 in aggregate, including those arising from executive assessments or tax credit recovery notices.
The 2026 Budget Law lowers the threshold triggering this prohibition from €100,000 to €50,000.
This prohibition does not apply if:
- An installment payment plan for registered debts is in place;
- A scrapping (“rottamazione”) application for registered debts has been submitted.
Note that this restriction does not apply to the offsetting of credits related to:
- Social security contributions owed by holders of insurance positions managed by pension institutions, including association fees;
- Social security contributions owed by employers and principals for coordinated and continuous collaboration arrangements;
- Work insurance premiums for occupational accident insurance.
Incentive for Permanent Employment Contracts in 2026
Paragraphs 153–155 of the 2026 Budget Law allocate resources for the introduction of an incentive for permanent (open-ended) employment of non-managerial staff for 2026, available to private sector employers (the incentive also applies to conversions from fixed-term to permanent contracts).
Specifically, the allocated resources support an incentive aimed at:
- Increasing stable youth employment;
- Promoting equal opportunities in the labor market for disadvantaged female workers;
- Supporting employment development in the Single Special Economic Zone for the South (ZES unica);
- Reducing regional disparities.
The incentive consists of a partial exemption from total employer social security contributions (excluding INAIL) for a maximum of 24 months.
The specific measures, requirements, and conditions necessary to ensure spending limits are subject to an implementing decree to be issued by the Minister of Labor and Social Policies, in consultation with the Minister of Economy and Finance.
Incentive for Hiring Mothers
A permanent incentive, effective from 2026, is introduced for private sector employers hiring women who meet the following criteria:
- Mothers of at least three children under 18 years of age;
- Unemployed (not in regularly paid employment) for at least six months.
The incentive applies to hires under fixed-term subordinate employment contracts (including temporary agency contracts) or permanent contracts. Conversions from fixed-term to permanent contracts are also eligible. Domestic work and apprenticeship contracts are excluded.
The incentive consists of a 100% exemption from employer social security contributions, up to a maximum annual cap of €8,000, calculated and applied on a monthly basis (excluding INAIL premiums and contributions).
The duration of the relief is as follows:
- 12 months from the hiring date for fixed-term contracts (including temporary agency contracts);
- Up to 18 months from the hiring date for fixed-term contracts subsequently converted to permanent contracts;
- 24 months from the hiring date for permanent contracts.
Employers should await INPS instructions, which will specify the procedures and effective date for submitting relief applications.
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