IRPEF Adjustment: What it is and how it works

As the year-end approaches, so does the time to address the year-end reconciliation of IRPEF (Personal Income Tax), an activity involving both companies and employed or self-employed individuals.

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IRPE AdjustmentsFor companies, this period demands rigorous attention to managing tax data. It’s crucial to verify that all aspects related to employees’ income, including salaries, bonuses, and other forms of remuneration, are accurately recorded and declared.

On the other hand, employed or self-employed individuals must be aware of their tax obligations in anticipation of the year-end reconciliation. It’s essential to diligently retain and verify documentation related to their incomes, including any self-employment earnings or other sources to ensure accurate declarations.

IRPEF Reconciliation

The IRPEF reconciliation on the payslip represents an adjustment made by the employer, typically in the final annual compensation, aiming to align the actual tax withholdings made throughout the year with what should have been withheld, considering the employee’s total tax situation. Throughout the year, IRPEF withholdings are calculated monthly based on the received salary and the deductions entitled to the worker.

Therefore, the reconciliation’s role is to rectify these discrepancies, ensuring that the employee correctly remits the amount relevant to the entire fiscal year.

IRPEF Tax Period

During the tax period, the income considered for year-end reconciliation is that accrued in each calendar year, corresponding to the period from January 1st to December 31st. Additionally, sums and values recognized and accounted for within the same period but acknowledged by January 12th of the following year are also included, following the principle of the extended cash basis.

What’s the process used to calculate the net tax on the payslip?

To calculate the IRPEF reconciliation, the withholding agent must consider the following factors related to the worker’s annual income:

  • Earned incomes: encompass salaries for employed work, along with assimilated incomes;
  • Work activities performed abroad: for a continuous period not less than 183 days during the year;
  • Received benefits: include both monetary compensations and liberal distributions aimed at the worker;
  • Miscellaneous revenues: such as pensions, pension-like allowances, interests, and adjustments on credits originating from employed work.

These elements, used to determine the worker’s annual comprehensive income, are fundamental in establishing the gross taxable base necessary to calculate the reference IRPEF rate.

During the IRPEF reconciliation operation, the deductions entitled to the employee must be subtracted from the worker’s annual gross income. The difference between the annual gross tax and the amount of deductions entitled to the employee will determine the IRPEF reconciliation to be applied to the worker.

Consequently, two possible scenarios can be identified:

  1. Credit reconciliation: during the year, the worker has undergone tax withholdings higher than the actual due amount of IRPEF (refund of excess withheld amounts);
  2. Debt reconciliation: during the year, the worker has undergone tax withholdings lower than the actual due amount of IRPEF (withholding for taxes still due).

In similar situations, it’s important to pay attention if the worker’s remuneration isn’t adequate to cover the amount due. In such circumstances, two possible alternatives arise:

  • Payment to the employer for residual withholdings: the employee can pay the employer the corresponding amount for the still due withholdings. Subsequently, the employer must remit these amounts to the Treasury in the month following the reconciliation, using the F24 form;
  • Authorization to the employer for subsequent deduction: alternatively, the employee can authorize the employer to deduct the necessary amounts from the remunerations of subsequent periods (monthly interest is applied on deferred amounts beyond February).

In general, it’s essential to emphasize that IRPEF reconciliation operations must be carried out by the employer no later than February 28th of the subsequent year under consideration.

Conclusion

In conclusion, the IRPEF reconciliation assumes a crucial role in the context of tax management in employment, ensuring fair taxation adapted to each employee’s financial situation. Although it may seem merely an accounting activity, its direct impact on remuneration significantly affects the purchasing power of the worker. It’s important for both employers and employees to fully understand the significance and role of reconciliation to ensure proper tax management.

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