Budget Law 2024 has been approved

On October 16, 2023, the Council of Ministers approved the “2024 Budget Law.”

With the approval of the Budget Law, among other measures, the following are confirmed: the 5 percent tax exemption on productivity bonuses, a reduction in employee contributions, and the introduction of new income tax brackets and new exemption thresholds for fringe benefits.

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Productivity Bonuses

As previously planned for 2023, and with the aim of promoting increased labor productivity, the 2024 Budget Law has confirmed a 5% tax rate on productivity bonuses. Indeed, productivity bonuses are subject to a substitute tax at a rate of 5%, as established by the 2023 Budget Law, which already introduced a reduction from the previous preferential tax rate of 10%. However, this preferential tax rate applies only to performance bonuses with a gross total amount not exceeding €3,000, and it is applicable only to employees whose annual income from employment in the preceding year does not exceed €80,000. To qualify for the tax benefit, the overall bonus amount paid must be linked to achieving at least one of the productivity, profitability, quality, efficiency, and innovation goals stipulated by the law within a reasonable period defined in the company agreement to be filed with the Ministry of Labor. The increase in these goals should be verifiable through numeric indicators defined in the collective bargaining agreement.

Reduction of Employee Contributions

The 2024 Budget Law has confirmed the reduction of employee contributions already in effect for pay periods in the second half of 2023, as specified in the May 4, 2023, Labor Decree:

  • A 7% reduction in employee contributions for those with annual gross earnings up to €25,000.
  • A 6% reduction in employee contributions for those earning annual gross income between €25,000 and €35,000

Income Tax (IRPEF) – New Tax Brackets

Regarding personal income taxes, for the year 2024, the first two IRPEF tax brackets will be merged, reducing the number of income brackets from four to three and their corresponding progressive tax rates. This means there will be a single tax rate of 23% for incomes up to €28,000, as follows:

  • 23% for incomes up to €28,000.
  • 35% for incomes between €28,000 and €50,000.
  • 43% for incomes over €50,000. Additionally, the tax deduction for employees with dependent income is set to increase from €1,880 (the value until 2023) to €1,955.

Fringe Benefits – New Exemption Limits

Fringe benefits are non-monetary forms of compensation, involving the provision of goods and/or services to employees, and they enjoy specific tax and social security treatment, as they do not contribute to taxable income up to certain thresholds. The 2024 Budget Law has introduced substantial changes in exemption limits:

  • The total value of fringe benefits provided in a year is exempt if it does not exceed €1,000 (previously €258.23) for employees with no dependent children.
  • The total value of fringe benefits provided in a year is exempt if it does not exceed €2,000 (previously €3,000) for employees with dependent children. It is important to note that the €1,000.00 or €2,000.00 value is not a tax-free threshold but an absolute limit. This means that in case the aforementioned limits are exceeded, the entire amount provided will be subject to regular taxation, not just the excess portion.

In Conclusion

The 2024 Budget Law, in compliance with European rules and considering the delicate economic situation negatively influenced by inflation, rising energy costs, global uncertainty stemming from the Russo-Ukrainian conflict, and the recent crisis in the Middle East, focuses on measures aimed at reducing the tax burden and supporting the low to middle-income workers.

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