Gifts to employees for the festivities
During the festivities, it is customary for employers to make a gift to its own employees.
There follows a summary of the tax rules applied in these circumstances.
During the festivities, and particularly Christmas, it is customary for many companies to send gifts or giveaways to their own employees.
The gifts may be of two kinds:
- monetary gifts,
- non-monetary gifts.
The former are are always taxable in their entirety, while the latter are not, within the yearly limit of 258.23 euro; if this limit is exceeded the whole value becomes taxable.
Employee who has been acknowledged the following during the year:
a) 250.00 euro for his or her wedding,
b) spending voucher amounting to 75.00 euro,
b) petrol vouchers amounting to 50.00 euro,
b) Christmas hamper worth 30.00 euro.
The monetary gift (250.00 euro) is entirely taxable (in terms of both tax and welfare contributions), whereas, since the vouchers and the Christmas hamper are non-monetary gifts whose value does not exceed 258.23 euro in the year, they will be excluded from the taxable base.
Employee who has been acknowledged the following during the year:
a) 300.00 euro for his or her wedding,
b) spending voucher amounting to 200.00 euro,
b) Christmas hamper worth 150.00 euro.
The monetary gift (300.00 euro) is entirely taxable (in terms of both tax and welfare contributions), the vouchers and the Christmas hamper are also taxable because the value of the non-monetary gifts exceeds 258.23 euro in the year.
Art. 2 (6) of Decree Law 93/2008 has abolished the provision laid down by art. 51 (2), letter b) of the TUIR (Consolidating Law on income tax) that excluded donations made by the employer for festivities or other events to all employees or categories whereof, from personal income tax.
Specifically, these donations were excluded from forming income from employment, up to 258.23 euro in the tax period.
As a consequence of this abrogation, donations now contribute to forming income from employment for the whole amount, without prejudice to the exceptions laid down in art. 51 (3) of the TUIR (Consolidating law on income tax).
Indeed, paragraph 3 envisages that “if the value of the goods given and the services rendered does not exceed the overall value of ITL 500,000 (258.23 euro) in the tax year, it does not contribute to forming income; if the value exceeds this limit, it contributes entirely to forming the income”.
With memorandum 59/E/2008, the Revenue Office clarified that “exclusion from income also operates if the donation is made to a single employee, since it is no longer required that the donation be made for festivities or events to all employees or to categories of employees, without prejudice to the fact that if the value in question exceeds this limit, it contributes in its entirety to forming the income”. They are, therefore, “ad personam” donations.
It is pointed out that the monetary limit of 258.23 euro refers to the individual employee and to the whole tax period; no justification must be made in the event of employment for less than a year.
Considering that in the event of the amount of 258.23 euro being exceeded, the value of the donation would contribute in its entirety to forming the income from employment, also for the purposes of determining any Christmas gift.
It is worthwhile remembering that non-monetary gifts include:
- fringe benefit (cars for mixed use, computers …);
- vouchers (e.g. petrol vouchers or shopping vouchers);
- products manufactured by the company.
Therefore, if an employee is given a company car for mixed use and they also receive a Christmas gift of 200.00 euro, since they have already exceeded the limit of exemption (car for mixed use), the gift will be taxable in its entirety.
End of year tax adjustments
When processing the pay slip of the month of December, the employer is obliged to make the tax adjustments on the personal income tax (IRPEF), on the regional and municipal additional tax amounts effectively owed by the worker with reference to the tax year (1st January – 31st December), as laid down by art. 23 of Presidential Decree 600/73.
There follows an illustration of how the tax adjustments are made and what the elements considered are.
The amounts subject to end of year tax adjustments are those paid for:
- income from employment (art. 49 of the TUIR);
- income treated as that from employment (art. 50 of the TUIR), like consideration paid for project work, scholarships, etc.;
- income received as replacing income from employed work, like for instance temporary redundancy pay, mobility allowances, sickness pay received from INPS (National Insurance Institute), maternity pay, amounts paid by INAIL (Workplace Accident Insurance Institute) for temporary invalidity, etc.;
- non-monetary consideration (fringe benefits) for the amount determined in money and donations.
You are reminded that some of the amounts paid to the workers are excluded from the calculation of the IRPEF (personal income tax) calculation, like:
- family allowances, 100% exempt;
- luncheon vouchers up to the limit of 5.29 euro (paper vouchers) or 7.00 euro (electronic) per day;
- business trips in Italy up to 46.48 euro per day and abroad up to 77.47 euro per day;
- reimbursement of expenses for business trips in Italy up to 15.49 euro per day and business trips abroad up to 25.82 euro per day;
- back-dated payments received in the tax year but regarding previous years (this income is subject to separate taxation).
The reference period corresponds to the tax year (1st January – 31st December); however, for the purposes of the calculation, the amounts received by the 12th January of the subsequent year must also be considered, only if they refer to the year just ended (so-called “extended cash principle”).
Once the total of the worker’s income from employment and equivalent work has been obtained, the employer must determine the taxable base for the purposes of calculating the taxes, by subtracting the deductible charges from the income (art. 10 of the TUIR), like for instance welfare payments paid by the worker.
Having established the amount of the taxable income, the employer must calculate the gross personal income tax (IRPEF) due, by applying the IRPEF rates established by the law (art. 11 of the TUIR), differing according to the overall income scales:
- income up to 15,000.00 euro: rate of 23%;
- income from 15,000.00 to 28,000.00 euro: rate of 27%;
- income from 28,000.00 to 55,000.00 euro: rate of 38%;
- income from 55,000.00 to 75,000.00 euro: rate of 41%;
- income over 75,000.00 euro: rate of 43%.
Having determined the gross tax, the worker’s tax deductions must be calculated, like the deductions for employed work, deductions for family dependants (dependant spouse and children), that take into account not only the income received but also the number of days worked.
Decree law 70/2011 abolished the annual communication obligation on tax deductions that ordered employees to make an annual communication to request tax deductions.
After the initial request, the employer only has to be communicated any changes (like the birth of a child for example), there is no longer the need to repeat the communication every year unless there are changes.
In the adjustment stage the definitive amount of the bonus laid down in Law 190/2014 (so-called “bonus Renzi”) is also established. Like IRPEF withholdings, the bonus is also paid monthly on an annual simulation of the worker’s income:
- for income up to 24,600.00 euro: the entitlement is 960.00 euro per year;
- income from 24,600.00 to 26,600.00 euro: the bonus is recalculated on the basis of the following formula [960.00 × (26,600.00 – overall income)/2000.00];
- for income exceeding 26,600.00 euro: there is no entitlement to the bonus.
You are reminded that workers who do not exceed the income of 8,145.32 euro are not entitled to the “bonus Renzi” of 80.00 euro, if they have worked the whole year.
This is the case of the so-called “incapienti”, that is those who do not pay any taxes because they receive an income below 8,145.32 euro, with a gross tax lower than the deductions for employed and equivalent work.
Once the tax effectively payable by the worker has been calculated (gross tax – entitled deductions) the employer, considering the amounts already withheld from January to November, may proceed with the final tax adjustment that will be:
- tax receivable: if excess personal income tax (IRPEF) to that effectively payable by the worker has been withheld from the salary from January to November;
- tax payable: if the worker is obliged to pay further amounts.
The salary statement of December will, therefore, highlight the data regarding the worker’s annual income, the total tax payable, the amounts of the annual deductions to which he or she may be entitled for employed work or for dependant family members and the IRPEF tax adjustment withholding or the IRPEF tax reimbursement.
In the tax adjustment stage, the additional regional and municipal taxation to the IRPEF is also determined. The amounts calculated will be withheld from the employees starting from the month of January of the subsequent year in 11 monthly instalments, without prejudice to recovering the whole remaining amount in the event of termination of the working relationship.
In the tax adjustment stage, the additional municipal tax advance payable will also be calculated for the subsequent year, amounting to 30% of the additional municipal tax payable; the amount will be withheld in 9 instalments, starting from March of the year after.
The worker may communicate other income received to their employer (for example for periods prior to employment and/or from other part-time employment) which increase their own overall income, as well as further deductions to which they are entitled (for example for paying rental fees), in order for them to be taken account of in calculating the taxes (IRPEF, additional regional and municipal taxes).
IN THE EVENT OF INCORRECT TAX ADJUSTMENT
Art. 23 (3) of Presidential Decree 600/73 has established that withholding agent employers must carry out the tax adjustment operations by 28th February of the year following the tax period.
Therefore, even if the tax adjustment is generally made to the December pay slip, they have until 28th February of the year after to correct the tax adjustments made to the employed workers.
If the employer does not intend to re-open the calculation of the tax adjustment, or the term to do has expired, the worker may anyway present the tax returns (730 form or UNICO form) and recover the credits or pay the payables owed.
Finally you are reminded that in the presence of further income or charges or deductions, the end of year adjustment is only a first partial recalculation of the taxes and the worker must (in the presence of other income) and/or may (in the presence of deductible charges/deductible expenses) make the tax returns using the 730 form or the UNICO form.
The office remains at your disposal for any further clarification.
Arianna De Carlo – Senior Payroll Specialist & Labour Consultant