The Budget Law 2022 implemented a long-awaited tax reform in Italy. The 2022 IRPEF rates and brackets have been revised and the calculation methods have changed. Important changes have also been introduced with regard to the deductions per income category. Let's find out what the new rules are in order to understand how to calculate your taxes in Italy without making mistakes.
What is IRPEF and what has changed with the Budget Law 2022
Personal income tax in Italy (IRPEF) is a tax that is levied by means of rates according to the income bracket one belongs to. All employees, pensioners, self-employed workers and business partners, who reside in Italy or receive income in Italy, are required to pay this form of contribution to the state. The higher the income, the more the IRPEF, according to a system of rates and brackets, increases in value. Employees and pensioners can pay the tax with a monthly deduction in their pay slip. The self-employed, on the other hand, can do so at the time of their tax return.
The Budget Law 2022 (Law No. 234 published in the Official Gazette on 31st December 2021) reformed Italian IRPEF, redrawing the rates and brackets and reorganising the deductions, divided by income category (employee, pensioner and self-employed). Effective as of 1st January 2022, the new legislation is one of the most far-reaching tax interventions envisaged by the authorities and has introduced major changes in the way personal income tax is calculated in Italy.
New IRPEF brackets and rates 2022
Personal income tax in Italy has not been reformed on a structural level. In fact, the new law has only changed the IRPEF 2022 brackets and rates. Here are the new income brackets and rates in Italy in 2022:
- 1st income bracket: income between 0 and 15,000 euros. The IRPEF rate is 23%. As an example: in the case of an income of 15,000 euros, the rate corresponds to a taxation of 3,450 euros;
- 2nd income bracket: income between 15,001 euros and 28,000 euros. The IRPEF rate is 25%;
- 3rd income bracket: income between 28,001 euro and 50,000 euros. The IRPEF rate is 35%;
- 4th income bracket: income above 50,000 euros. The IRPEF rate is 43%.
Until 31st December 2021, before the enactment of the Budget Law 2022, there were 5 tax brackets instead of 4. The values of 23% and 43% have been confirmed by the new legislation, while the intermediate rates have undergone changes. More specifically, compared to 2021
- the 41% rate has been abolished;
- the second income bracket rate has been reduced from 27% to 25%;
- the third rate has been reduced from 38% to 35% and can be applied to incomes up to 50,000 euros;
- the fourth rate, while maintaining the same value as in 2021 (43%), can be applied to incomes above 50,000 euros (no longer to incomes above 75,000 euros).
How deductions have changed in Italy
The changes on the 2022 IRPEF brackets and rates have been accompanied by a redefinition of the deduction system. These are now separated by income category: employee, pension and self-employed.
In relation to the time worked in the year, employees are entitled to claim back:
- 880 euros, if the total income does not exceed 15,000 euros. In this case, the amount of the actual deduction cannot be less than 690 euros. In the case of a fixed-term employment relationship, on the other hand, it cannot be less than 1,380 euros;
- 910 euros, if the total income exceeds 15,000 euros and does not exceed 28,000 euros. The amount of the actual deduction is increased by the product of 1,190 euros and the amount of the ratio of 28,000 euros, less the total income, divided by 13,000. The calculation is as follows: 1,910+1,190*(28,000-income)/13,000);
- 910 euros, if the total income exceeds 28,000 euros and does not exceed 50,000 euros. The amount of the actual deduction is given by the ratio between the amount of 50,000 euro, minus the total income, and 22,000 euro. The calculation is as follows: 1,910*(50,000-income)/(50,000-28,000);
- 0 euros, if the total income exceeds 50,000 euros.
For total incomes between 25,000 and 35,000 euros, the deduction is increased by 65 euros.
The deduction due to pensioners in relation to the period of pension in the year is equal to:
- 955 euros, if the total income does not exceed 8,500 euros. In this case, the amount of the actual deduction may not be less than 713 euros;
- 700 euros, if the total income exceeds 8,500 euros and does not exceed 28,000 euros. The amount of the effective deduction is increased by the product of 19,500 euros and the amount of the ratio of 28,000 euros, minus the total income, divided by 19,500 euros;
- 700 euros, if the total income exceeds 28,000 euros and does not exceed 50,000 euros. The amount of the actual deduction is given by the ratio of 50,000 euros, less the total income, divided by 22,000 euros;
- 0 euros, if the total income exceeds 50,000 euros.
For total income between 25,000 and 29,000 euros, the deduction is increased by 50 euros.
Lastly, for self-employed income, there is a deduction, which cannot be combined with those for employment and pensions, of:
- 265 euros, if the total income does not exceed 5,500 euros;
- 500 euros, if the total income exceeds 5,500 euros and does not exceed 28,000 euros. The amount of the actual deduction is increased by the product of 765 and the amount of the ratio of 28,000, minus the total income, divided by 22,500 euros;
- 500 euros, if the total income exceeds 28,000 euros and does not exceed 50,000 euros. The amount of the actual deduction is given by the ratio of 50,000 euros, less the total income, divided by 22,000 euros;
- 0 euros, if the total income exceeds 50,000 euros.
For total income between 11,000 euros and 17,000 euros, the deduction is increased by 50 euros.
Italy IRPEF FAQs
What are the new IRPEF rates 2022?
There are four new IRPEF rates: 23%, 25%, 35% and 43%.
How does IRPEF income tax change in 2022?
The Budget Law in force as of 1st January 2022 introduced important changes regarding IRPEF 2022. Compared to 2021, the income brackets and their rates have been reshuffled: the 41 per cent rate has been abolished, the second income bracket rate has been reduced to 25 per cent, the third bracket rate has been reduced to 35 per cent and can be applied to incomes up to 50,000 euros, and the fourth bracket rate, while maintaining the same value, can be applied to incomes above 50,000 euros.
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