Tax Authority: Instructions On Tax Benefits Provided By 2026 Budget Law

With circular no. 2 of 24 February 2026, the Italian Tax Authority provided operational instructions on the scope of application of the tax relief provided by Law No. 199 of 30 December 2025 (the so-called 2026 Budget Law) concerning salary increases resulting from contract renewals as well as bonuses and allowances for night work, work on public holidays, work on weekly rest days or shift work.

Specifically, with regard to the taxation of salary increases in contract renewals for private sector workers with incomes up to €33,000 (Art. 1, para. 7 of the 2026 Budget Law), the Authority has clarified that the 5% substitutive tax:

• applies – even where the pay increase has absorbed the amount recognized to the employee as a superminimum – only to pay increases that are included in direct remuneration (twelve monthly payments, thirteenth and fourteenth month's salary), as well as to indirect remuneration affected by the same salary increases – such as absences – for the part supplemented by the employer only, which give the right to retain the job (illness, maternity/paternity, accident);
• does not apply to sums paid for services additional to ordinary activities (seniority increments, one-off payments, severance pay, etc.); una tantum, TFR, etc.);
• if the renewal of the National Collective Bargaining Agreement provided for the payment of salary increases in several instalments, the tax benefit only applies to amounts paid from 1 January 2026 (even if payment began earlier).

On the other hand, with regard to the tax benefit dedicated to surcharges and allowances for night work, work on public holidays, work on weekly rest days or shifts up to a maximum limit of €1,500 of the relevant taxable income (Art. 1 paras. 10 and 11 of the 2026 Budget Law), the Authority has specified that the substitute tax at a rate of 15%:

• applies to employees who did not exceed €40,000 in employment income in 2025;
• does not apply to sums paid on the basis of regional and company agreements, as well as to indirect remuneration – paid by the employer – in the event of absence from work (illness, maternity/paternity, accidents), to deferred remuneration (severance pay) and to items relating to ordinary direct remuneration (including the thirteenth and fourteenth month's salaries).