The Italian legislator, keen to encourage population growth has made provision for tax benefits relating to children. The tax legislation makes reference to
- minor child: a child under the age of 18 years old
- dependent child: a person is considered a family dependent if
- they are under 24 years old and have total annual income below or equal to Euro 4,000, before any deductible expenses.
- they are over 24 years old and have total annual income below or equal to Euro 2,840.51 euros
The main benefit available is a tax credit (detrazione) – a fixed amount that can be offset against your total tax liability providing you have capacity and the “right kind” of income – this kind of tax credit cannot be offset against substitute or flat tax – e.g. the 26% flat tax on investment income income or the 5% substitute tax for the self-employed on the regime forfettario.
The maximum basic tax credit, that can be taken in an annual tax return, for a dependent child is currently:
- Euro 1,220 for a child under three years of age;
- Euro 950 if the child is three years old or older.
These amounts are increased by Euro 200 for any child which is part of a family where there are three or more dependent children. The amounts are increased by Euro 400 where the child has a recognised disability.
These are maximum deductions since the tax credit reduces as total income increases. No tax credit available if your total taxable income is more than Euro 95,000 per annum. The Euro 95,000 limit is increased by Euro 15.000 for each dependent child in the family after the first.
Since each parent files their own tax return the child tax credit is divided 50% between the parents as long as they who are not legally or effectively separated.
Alternatively, if the parties agree, it is possible to choose to allocate the entire tax credit to the parent with the higher income.