The 2025 Budget Law introduces significant changes for Italian employees, focusing on reducing the tax wedge and expanding the pool of beneficiaries. The objective is to increase workers’ purchasing power by lowering the tax burden, thereby improving net take-home pay for low- and middle-income employees. Additionally, the reform aims to streamline the Italian pension system, shifting from contribution-based reductions to tax-based incentives.
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Di seguito una panoramica delle principali novità: 
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Below is an overview of the key measures introduced:
1. Tax Wedge Reform and New Incentives
The tax wedge represents the difference between the total labor cost incurred by the employer and the net salary received by the employee. The 2025 Budget Law introduces:
- Expansion of the Benefit: The tax cut, previously applied to incomes up to €35,000, is now extended to those earning up to €40,000. This change allows approximately 1.3 million additional employees to benefit from a reduced tax and contribution burden.
- Simplification of the Mechanism: The reduction will no longer be applied as a social security contribution discount but will be provided directly as a tax deduction.
- Structural Nature of the Measure: Starting in 2025, this provision becomes a permanent measure, eliminating the uncertainty of temporary tax relief programs and enabling better financial planning for both employees and businesses.
2. “New” IRPEF Brackets
The IRPEF system remains progressive, calculated on taxable income (net of employee contributions) rather than gross annual salary (RAL). The new IRPEF tax brackets, introduced by the 2024 Tax Reform, have been confirmed as a permanent structure under the 2025 Budget Law:
- 23% for income up to €28,000
- 35% for income between €28,000 and €50,000
- 43% for income exceeding €50,000
It is important to note that only the portion of income exceeding each threshold is taxed at the higher rate, following the progressive tax system.
3. Tax-Free Allowance for Incomes up to €20,000
One of the most significant innovations is the introduction of a tax-free allowance for employees earning up to €20,000, structured as follows:
- 7.1% for incomes up to €8,500
- 5.3% for incomes between €8,501 and €15,000
- 4.8% for incomes above €15,000 up to €20,000
This allowance is paid directly by the employer, added to the employee’s net salary, and does not increase taxable income. Employers can recover the amounts through F24 tax offsets.
4. Additional Deductions for Incomes Between €20,000 and €40,000
For employees earning between €20,000 and €40,000, the law introduces additional tax deductions to reduce net tax liability:
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€1,000 fixed deduction for incomes between €20,000 and €32,000.
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For incomes between €32,000 and €40,000, the €1,000 deduction gradually decreases until it phases out at €40,000. The deduction is calculated using the formula:
€1,000 x [(40,000 – Employee’s Total Income) / 8,000]
This measure provides targeted tax relief for middle-income workers who qualify for additional tax reductions.
5. Additional Tax Measures in the 2025 Budget Law
Beyond the tax wedge reduction and IRPEF brackets, the 2025 Budget Law includes additional measures to lighten the tax burden:
- Expansion of the No-Tax Area: The tax-exempt income threshold for employees is raised to €8,500, aligning it with that of pensioners, thereby further protecting workers’ purchasing power.
- Tax Reconciliation Installments: Tax adjustments exceeding €60 will be spread over ten monthly installments to prevent excessive financial burdens.
- Employer Compensation: Withholding agents (employers) can offset accrued tax credits via the F24 tax model, simplifying fiscal management.
6. Overall Assessment
When comparing the 2025 Budget Law to previous tax regimes, several key aspects emerge:
- Compared to 2023: The new measures increase net salaries across all income brackets up to €40,000, providing greater liquidity amid rising costs.
- Compared to 2024: While workers earning up to €20,000 may not fully retain the previous benefits (which included more favorable contribution reliefs), the new structural tax system offers long-term stability. A comprehensive evaluation should consider the broader fiscal landscape rather than focusing on a single-year comparison.
Conclusions
The 2025 Budget Law marks a structural shift in Italy’s tax framework. Measures such as the expansion of the tax wedge reduction, the new IRPEF brackets, the introduction of tax-free allowances for incomes up to €20,000, and the enhancement of deductions for incomes up to €40,000 have a direct impact on the net income of low- and middle-income employees. These changes aim to create a more transparent, fair, and predictable system, ultimately supporting workers’ purchasing power. However, the long-term effectiveness of these reforms in offsetting inflation remains to be assessed.
