Tax Updates

A draft of the Italian 2026 Budget law has been published and a summary of the main terms published on Ministry of Finance web page:

https://www.mef.gov.it/focus/Principali-misure-della-legge-di-bilancio-2025/

The main tax measures as described on the Ministry web site,  are summarised below. The Draft Bill is now proceeding with the Parliamentary debate and approval process where it may be amended, before being published as a law toward the end of the year. 

Tax measures appeared to be focussed on support for low-middle income taxpayers.

Reduction of the the Payroll  “Gap” (Cuneo Fiscale)

The tax gap or Cuneo Fiscale refers to the overall cost of employing someone i.e. the difference between what an employer pays overall in respect of that employment, and what their employee receives net after tax and social security contributions.

The reduction for low- and middle-income earners has been confirmed and made permanent, extending it to incomes up to €40,000, benefiting an additional 3 million taxpayers. With the new Budget Law, the tax wedge reduction remains a contribution-based reduction for incomes up to €20,000, while for incomes between €20,000 and €40,000, the reduction becomes a tax-based reduction, with a fixed deduction of €1,000 up to €32,000, a deduction that progressively decreases to zero between €32,000 and €40,000.

Revision of IRPEF Tax Rates

The revision of the three-bracket personal income tax (IRPEF) rates, already introduced for 2024, has also been confirmed and made permanent. This provides for the consolidation of the first two income brackets, applying a 23% rate to taxable incomes up to €28,000 gross (instead of €15,000). The two measures are estimated to have an overall impact of approximately €18 billion annually.

Baby Bonus

To encourage births and contribute to child support costs, a bonus of €1,000 is available for each child born or adopted from January 2025 onwards for families with an ISEE (Equivalent Economic Situation Indicator) of no more than €40,000 per year.

Increased parental leave and nursery school bonuses

For the first time, the 80% paid parental leave period has been extended to a total of three months within the child’s sixth birthday. Furthermore, the nursery school bonus has been modified, going beyond last year’s legislation. For children born after 2024 in families with ISEE incomes below €40,000, the benefit will be increased to €3,600 and recognized regardless of the presence of other children, thus expanding the eligible group. Furthermore, the exclusion of amounts related to the universal single allowance when determining the ISEE income required for accessing benefits for newborns and for nursery school expenses has been confirmed.

Social Security Contribution Exemption for Working Mothers

The bonus for working mothers has been confirmed and extended to temporary workers and self-employed workers, including those with business income who do not opt for the flat-rate scheme. This is a contribution relief that, starting in 2025, will be available to working mothers of two or more children until the youngest child reaches the age of ten. Starting in 2027, mothers of three or more children will be exempt from contributions until the youngest child reaches the age of 18. The exemption is only available if the annual salary or taxable income for social security purposes does not exceed €40,000.

Increase In Tax Deductions For Private Schools

The tax deduction cap for private schools school expenses has been raised to €1,000.

Family Endowment Fund

To support parenting and sports and recreational activities outside of school, a  “Family Endowment Fund” has been established, with €30 million for 2025, dedicated to young people aged between 6 and 14 in households with an ISEE income of up to €15,000.

First Home Mortgage Guarantee Fund

The Draft Bill that facilitates access to first-time home mortgages, taking advantage of the state guarantee, has been extended for the entire three-year period 2025-2027 for certain categories: young couples, large families, and young people under 36.

Support for the Purchase of Food Products

The “Dedicata a te” card for the purchase of basic food items for families with an ISEE (Equivalent Economic Situation Indicator) of no more than €15,000 has been refinanced, and the Fund for the distribution of food to the needy has been permanently increased.

Appliance Bonus

To support industrial competitiveness, employment, and household energy efficiency, a subsidy will be provided to end consumers for the purchase of energy-efficient appliances in 2025. The subsidy is equal to 30% of the cost of the appliance, up to a maximum of €100 for each purchase, increased to €200 for families with an ISEE (Equivalent Economic Situation Indicator) of less than €25,000.

Tax Deductions

The Draft Bill introduces a maximum limit on certain tax deductions for taxpayers with incomes above €75,000, while also guaranteeing greater benefits to families with more than two dependent children and families with disabled children. Healthcare expenses and those related to mortgages taken out until December 31, 2024, are excluded from the revised deduction cap. Investments in startups and innovative SMEs are also excluded. The deduction can reach up to a maximum of €14,000 for those with incomes between €75,000 and €100,000, while for those with incomes between €100,000 and €120,000, the maximum deduction will be €8,000. Deductions for children over 30 are also suspended, with the exception of disabled children, for whom deductions continue to be guaranteed without age limits.

Pensions

As regards social security, the budget introduces the prospect of legislation aimed at encouraging workers to remain in employment and addressing the lack of specific expertise in the public and private sectors.

Tax exemptions and an extension of the contribution incentive, the benefit consisting of the recognition of the employee’s share of contributions on their paychecks for those who meet the requirements for early retirement and decide to remain employed (the so-called Maroni Bonus), are envisaged. The provision’s scope has been expanded to include individuals who, as of December 31, 2025, met the requirements for early retirement regardless of age. The amount corresponding to the contribution paid in full to the employee will be excluded from taxable income.

To facilitate continued employment in public administration, changes have been introduced to current legislation, both to align the statutory age limits with the age requirements for accessing old-age retirement and to allow continued employment even after meeting the requirements for early retirement.

The pension package includes the confirmation of the current early retirement options (Quota 103, Social Ape, and Women’s Option) for 2025, and the introduction of the option of retiring early to 64 by combining mandatory and supplementary pension plans.

Pensions equal to or below the minimum pension will be increased by 2.2% in 2025 and by 1.3% in 2026. It should be noted that, without this Draft Bill, the amounts for the next two years would have been lower since the adjustment would have been adjusted for inflation, which this year has significantly decreased compared to the past. Increases will also apply to pensioners in difficult circumstances over 70 and to those receiving social security benefits.

Health

The Draft Bill allocates additional resources to finance the National Health Service, in addition to those already allocated under current legislation. Overall, the level of funding for the National Health Service will increase from €136.5 billion in 2025 to €141.3 billion in 2027, with an average annual increase over the period 2025-2027 exceeding the growth rate projected for net primary expenditure in the Medium-Term Structural Budget Plan. Starting in 2025, nurses’ overtime will be taxed at a flat 5% rate.

Employment 

The “more people you hire, the less you pay” scheme is being extended.

The 20% increase in the deduction for labor costs resulting from new permanent hires by businesses and professionals has been extended for the next three years. The deduction can reach up to 130% for stable hires of certain categories of individuals (disabled individuals, young people under 30 eligible for employment incentives, mothers with at least two children, women victims of violence, former recipients of the basic income).

Tax exemption for productivity bonuses

The reduction in the substitute tax on performance bonuses or profit-sharing bonuses from 10% to 5% has been extended until 2027.

Fringe Benefits

The tax exemption threshold for fringe benefits has been confirmed for the three-year period 2025-2027 (€1,000 for workers without children and up to €2,000 for those with children). For new permanent hires with an income of up to €35,000 in the previous year who agree to relocate their residence more than 100 kilometers away, the sums paid or reimbursed by employers for rent and maintenance costs are exempt from taxable income up to a total annual limit of €5,000 for the first two years from the date of hire.

Increase in the Regime Forfettario Threshold for employees

The income threshold from employment or pensions that denies access to the Regime Forfettario where the taxpayer has other income from employment or self-employment has been raised from 30,000 to 35,000 euros.

HNWI Flat Tax

The flat tax for new residents (Article 24-bis of the TUIR) sees an increase in the annual substitute tax going from from €200,000 to €300,000. For family members, the flat tax increases from €25,000 to €50,000. The increase applies taxpayers transferring residence from the date the law will comes into force.

Business Taxes

Incentive IRES (corporate income tax)
The Draft Bill promises a reduction from 24% to 20% of the IRES rate for companies that reinvest at least 80% of their profits, of which at least 30% is for investments in 4.0 and 5.0 assets, and that hire 1% more workers.

To encourage private investment, €1.6 billion has been allocated for 2025 to finance a tax credit for companies that purchase capital goods for production facilities located in southern Italy. The resources of this measured referred to as the  Nuova Sabatini, a subsidy that reduces the cost of financing for plant and equipment, are being increased, and resources are being allocated to facilitate investment in the tourism sector.

In addition, in order to encourage the listing of small and medium-sized enterprises on regulated markets or multilateral trading facilities in a Member State of the European Union or the European Economic Area, the tax credit of 50% of consultancy expenses incurred is extended for three years.

Banks And Insurance Companies

The financial and insurance sectors will also contribute to the financing of the 2025 budget measures.

In particular, for the financial sector, there will be a postponement of deductions for write-downs and losses on loans and goodwill related to deferred tax assets.  Added to this is the limit for 2025 on the usability of ACE losses and surpluses.

With regard to the insurance sector, the regime for the payment of stamp duty on financial communications relating to with -profits life insurance contracts is being changed, which will have to be paid annually and no longer in a single installment at the end of the contract, or on redemption.