Tax credit for employment income

Italy has no personal relief nor (any longer) a no-tax zone.  This means that you start paying income (at 23% – see the marginal rates here) of the first euro of income.  However Italy has a complex system of tax credits (described as “deduzioni” – deductions from taxable income or “detrazioni” deductions from tax due.

The deduction available for income from employment (which also included pension income) must be shown on line RN7 Col.1 2018 income tax return for the 2017 tax year.

The figures required to calculate the deduction are as follows:
– the total employment income eligible for deduction (line RN1). This line must include rental income (including short leases) subject to the “cedolare secca” – the flat rate 21% tax on Italian source rental income, reported in line RB10 (14 and 15).
– any deduction for principal residence (line RN2),
– the number of days for which the deduction is due.

Special rules apply for employees who also have business income (e’g. from a trade or profession). Although the rules are intricate, taxpayers who have income from a single employment or pension income not exceeding Euro 8,000, and have no other source of income will pay no income tax. Above 8,000 the tax credit reduces to zero as total income hits Euro 55,000.

Total annual income
From
ToTax CreditComments
NilEuro 8.000 1,880the tax credit cannot be less than Euro 690
(Euro 1, 380 for fixed-term employment contracts)
Euro 8,000
28,000(902 x 28,000)
- total income
--------------------
20.000
28,00055,000978 x
(55,000 - total income)
--------------------------
27,000
From 55.000Nil

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.”

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