Tax Credits For Other Dependent Family Members and Disabled Persons
Tax credits are also available for other dependent family members who are not a spouse or dependent child. These include parents, grandparents, siblings, in‑laws and other relatives listed in the Italian Civil Code, provided they live with the taxpayer or receive continuous financial support. A family member is considered fiscally dependent where their annual income does not exceed Euro 2,840.51. The credit applies only to IRPEF and cannot be used to reduce regional or municipal surtaxes.
Higher tax credits are available where the dependent family member is recognised as disabled under Italian law. The amount of the credit depends on the taxpayer’s total income and decreases gradually as income rises, becoming nil once the upper income threshold is reached. The credit is available only where the disabled person’s annual income does not exceed the statutory threshold and the taxpayer provides financial support.
Background
Italy has no global personal relief nor (any longer) a general no-tax area. This means that you start paying income tax on the first Euro of income. See the marginal rates and rates of substitute tax here. However Italy has an intricate system of tax reliefs (described generally as
- “deduzioni” – deductions from taxable income or
- “detrazioni” deductions from tax due – in other words a tax credit.
These deductions and tax credits refer to particular types of income. Where a specific type of income, as described below, is reported in the tax return, then, where there is a right to a specific deduction or tax credit, the tax on the relevant income will be reduced.
The system is designed to provide relief from tax for those on lower incomes or where there is a public policy motivation for exempting certain types of income from tax.
These reliefs, in the context of taxation of individuals, can be divided into three main categories:
- Tax Credits for Income from Employment, Self Employment and Pensions for low earners;
- Exemption from tax on official land registry income for a first home;
- Tax Deductions and Reliefs for qualifying expenditure, or investment.
This post deals with deductions and tax credits which are applied after the calculation of taxable income and which are potentially available to all taxpayers. For a listing of .tax deductions and tax credits available for specific types of expenditure see this post. There are shown in Sections RN and RP of the Italian tax return. Other types of deducible expenditure such a business expenses will be dealt with in the specific business income section of the tax return, with the net amount flowing through to Section RN.
Deduction For Income For Income from Land and Buildings (“Prima Casa”)
The Italian tax system allows a deduction equal to the official land registry yield (“rendita catastale“) of the main home and its appurtenances. This value corresponds to the rendita catastale increased by 5 percent and adjusted for the period and percentage of ownership. The deduction reduces the taxpayer’s total taxable income and ensures that the main home does not generate taxable income for IRPEF purposes. The deduction applies only to one property used as the taxpayer’s habitual residence and also applies when the home is used as the main residence by the taxpayer’s family members.
This only applies to the principal residential property and one qualifying appurtenance (an outbuilding such as a garage or storage area). If you own real estate apart from the main residence which is registered with the land registry as e.g. agricultural or commercial property, then the deduction will not be available for the land registry yield on that property.
Tax Credit For Income From Employment
The employment income tax credit reduces the IRPEF due on income from employment and similar work relationships. The amount of the credit depends on the level of annual employment income and gradually decreases as income rises. For 2025, the credit is calculated using income bands and formulas set by law, with the full credit available only at lower income levels. As income increases, the credit is reduced until it reaches zero once the taxpayer’s income exceeds the upper threshold. The credit applies only to income from employment and is used directly to reduce the IRPEF tax (but not the additional regional and municipal taxes) calculated on that income.
For 2025, the maximum employment income tax credit is Euro 1,955, which corresponds to a no‑tax area of Euro 8,500. The full credit is effectively available only for income up to this level. Above Euro 8,500, the credit begins to reduce gradually, up to Euro 50,000 wherever the tax credit is nil. Workers with income between Euro 25,000 and Euro 35,000 also receive an additional fixed amount of Euro 65. The credit applies only to employment income and is used directly to reduce the IRPEF tax calculated on that income.
The rates and thresholds are subject to amendment via the political process for adoption of legislation.
Employees paid through an Italian payroll will generally see their monthly tax withheld in accordance with these rules.
Tax Credit For Pension Income
The pension income tax credit reduces the IRPEF due on income received from Italian or foreign pension schemes. The amount of the credit depends on the level of annual pension income and decreases gradually as income rises. For 2025, the credit is calculated using income bands and formulas set by law, with the full credit available only at lower pension income levels. As income increases, the credit is reduced until it reaches zero once the taxpayer’s income exceeds the upper threshold. The credit applies only to pension income and is used directly to reduce the IRPEF tax (but not the additional regional and municipal taxes) calculated on that income.
For 2025, the maximum pension income tax credit is Euro 1,955, which corresponds to a no‑tax area of Euro 8,500. The full credit is effectively available only for pension income up to this level. Above Euro 8,500, the credit begins to reduce gradually, with the credit becoming nil once total income reaches Euro 50,000. The credit applies exclusively to pension income and cannot be used to offset tax on other categories of income.
Compared to the tax credit for income from employment The pension credit formula is designed to:
- taper more gently
- stay higher for longer
- avoid steep drops for middle‑income retirees
The rates and thresholds are subject to amendment via the political process for adoption of legislation.
Pension providers operating an Italian payroll will generally apply the credit through monthly withholding, although final entitlement is determined when the annual tax return is filed.
Tax Credit For Income From Self Employment (Reddito di Lavoro Autonomo)
The tax credit for income from self‑employment reduces the IRPEF due on income earned from professional activities, freelance work and other forms of independent work.
The credit only applies where income from self employment is subject to tax at normal IRPEF – it does not apply where the taxpayer opts for the flat/substitute tax under the Regime Forfettario.
That means that for the self-employed with low annual income, opting for the Regime Forfettario may result in overall a higher tax liability compared to the IRPEF Regime. But there are many variables in the calculation of which regime is more convenient.
For 2025, the maximum tax credit for self‑employment income is Euro 1,265, which corresponds to a no‑tax area of Euro 5,500. The full credit is effectively available only for income up to this level. Above Euro 5,500, the credit begins to reduce gradually and becomes nil once total income reaches Euro 50,000. The credit applies exclusively to self‑employment income and cannot be used to offset tax on other categories of income.
The rates and thresholds are subject to amendment via the political process for adoption of legislation.
Self‑employed individuals may be subject to withholding tax at source – generally depending on whether their client is a business or not. This, for Italian tax residents will generally be at a flat rate of 20% without consideration of the tax credit for self employment income. In these cases taxpayers need to apply the credit when calculating their IRPEF liability in the annual tax return.
Tax Credits for a Dependent Spouse and Children
Tax credits are available for taxpayers who support a dependent spouse, civil partner or other qualifying family members. A spouse or civil partner is considered fiscally dependent where their annual income does not exceed Euro 2,840.51. The maximum credit applies at lower income levels and reduces progressively as the taxpayer’s income increases, becoming nil once the upper income threshold is reached. The credit applies only to IRPEF and cannot be used to reduce regional or municipal surtaxes.
The IRPEF tax credit for dependent children has been abolished for children under the age of 21 and replaced by the Assegno Unico Universale, which is a welfare payment paid monthly and is not part of the IRPEF system. An IRPEF tax credit remains available for dependent children aged 21 or over, provided the child’s annual income does not exceed the statutory threshold and the child is financially dependent on the taxpayer. A child aged 21 or over is considered dependent (fiscalmente a carico) if their annual income does not exceed Euro 2,840.51.
The rates and thresholds are subject to amendment via the political process for adoption of legislation. Where tax is withheld at source, e.g by an employer, the credit will be applied through monthly payroll calculations, with final entitlement determined in the annual tax return. Typically Italian employers will request completion of a form on initial hire for the empolese to report their family circumstances and will follow in case of change of circumstances.
Tax Credits for Investment (Individuals)
Enhanced “De Minimis” Deduction (65%)
Individuals can claim a 65% deduction from IRPEF on the amount invested in the equity (share capital) of innovative startups.
This enhanced deduction applies only to investments in innovative startups, as defined, and only if the startup is within its first 3 years of registration in the special section of the Companies Register.
Investment Limit: The deduction is generally capped under the EU “de minimis” aid regime; the typical annual eligible investment base is up to €100,000 per taxpayer (i.e., maximum potential deduction of €65,000 in IRPEF) — although some interpretations of newer rules indicate higher de-minimis ceilings depending on sector rules.
This is currently the most advantageous individual incentive for investing in startup innovative equity.
As a consequence of recent statutory revisions, the enhanced 65% IRPEF deduction replaces the older 50% rate for tax periods beginning from 1 January 2025 onward.
Ordinary IRPEF Deduction (30%)
A 30% deduction from IRPEF is also available on the amount invested in the equity of innovative startups (as definied including under prior legislation).
Historically up to €1 million per tax year of investment is eligible for the 30% deduction.
This ordinary rate can be used for the portion of the investment that exceeds the “de minimis” regime limits or where the enhanced 65% deduction does not apply.
Interaction Between the Two Deduction Regimes
For a given investment in startup equity, a taxpayer may opt to use either the de minimis enhanced deduction (65%) for the portion up to the de minimis cap or the ordinary deduction (30%) for excess amounts beyond that cap.
This structuring allows investors to maximize tax relief while complying with EU state-aid limits.
Key Conditions & Practical Considerations
Eligibility
The company receiving the investment must be formally registered as a start-up innovativa in the special section of the Business Register.
The invested shares must generally be held for at least three years; early disposition can cause partial or full loss (recapture) of the benefit.
Certain rules exclude or limit the deduction if the investment creates a substantial shareholding exceeding defined thresholds.
Tax Credits for Foreign Taxes Paid
See this article for more information on the workings of the system and procedures for offsetting the foreign tax.
Tax Deductions for Specific Qualifying Expenditure
See this article for more information on the types of deduction/tax credits available, the applicable thresholds and rules, and for the various types of qualifying expenditure. The principal categories are:
- Social security contributions
- Medical and Veterinary Expenditure
- Alimony paid pursuant to a court order to a former spouse of civil partner
- Charitable and Political Party donations
Legislation:
Art. 13 of the Tax code, paragraph 1 establishes that:
“If one or more sources of income form part of total income as referred to in article 49, with the exception of those sources set out in paragraph 2, letter a), and 50, paragraph 1, letters a), b), c), c-bis ), d), h-bis) el),
a deduction from the gross tax due, pro rata according to the period worked during the year, equal to:
a) € 1,880, if the total income does not exceed € 8,000. The amount of the deduction effectively due can not be less than 690 euros. For fixed-term employment relationships, the amount of the deduction actually due may not be less than € 1,380;
b) € 978, increased by € 902 between the product and the amount corresponding to the ratio of € 28,000, less overall income, and € 20,000, if the total income is more than € 8,000 but not € 28,000;
c) 978 euros, if the total income is more than 28,000 euros but not 55,000 euros; the deduction is for the part corresponding to the ratio between the amount of 55,000 euros, less overall income, and the amount of 27,000 euros.”