An individual who qualifies as Italian tax resident could deduct from gross tax liability the following main tax credits, if all the conditions requested by the Italian tax law are met and if properly documented
- Employment tax credits.
- Family tax credits.
- Other tax credits for expenses.
Employment tax credits
Employment tax credits vary depending on the income:
- Employment income.
- Pension income.
- Self-employment income.
Employment income tax credit
The employments tax credit is determined as follows:
|Employment income (EUR)||Tax credit amount (EUR)|
|Up to 8,000||1,880|
|8,001 to 28,000||EUR 1,880 is the maximum annual amount allowed, which decreases with the increase in taxable income, up to EUR 28,000 of taxable income|
|28,001 to 55,000||EUR 978 is the maximum annual amount allowed, which decreases with the increase in taxable income, up to EUR 55,000 of taxable income|
In addition to the classic system of tax deductions provided for by the Italian Tax Code, the Law no. 21/2020 and the Italian Budget Law for FY 2021, in view of a revision of the tax deductions and income support measures, introduced two further and distinct mechanisms for reducing taxes.
- The first, consists of an additional tax deduction, and is due, from 1 July 2020 to 31 December 2020, in the case of incomes over EUR 28,000 and up to EUR 40,000, in two separate measures, which decrease with increasing income:
- EUR 480 from 1 July 2020 to 31 December 2020 and EUR 960 from 1 January 2021 onwards, increased by the product between EUR 120 (from 1 July 2020 to 31 December 2020) and EUR 240 (from 1 January 2021 onwards) and the amount corresponding to the ratio between EUR 35,000, less the total income, and EUR 7,000 if the total income is greater than EUR 28,000 but not EUR 35,000.
- EUR 480 from 1 July 2020 to 31 December 2020 and EUR 960 from 1 January 2021 onwards if the total income is greater than EUR 35,000 but not EUR 40,000; the deduction is due for the part corresponding to the ratio between the amount of EUR 40,000, less the total income, and the amount of EUR 5,000.
- The second provides, starting from 1 July 2020 to 31 December 2020, the recognition of a sum by way of additional treatment, which does not contribute to the formation of income and which therefore constitutes a net amount, equal to EUR 600 per year (FY 2020), in the case of incomes not exceeding EUR 28,000, provided, however, that the tax due, calculated net of only the tax deduction for employment income and assimilated income, is greater than zero. From 1 January 2021 onwards, the amount is EUR 1,200 for year.
Pension income tax credit
The pension tax credit is determined as follows:
|Pension (EUR)||Tax credit amount (EUR)|
|Up to 8,000||
The tax credit is equal to:
(EUR 1,880 x days)/365
The tax credit cannot be lower than EUR 713
|8,001 to 15,000||
The tax credit is equal to:
EUR 1,297 + (EUR 583 x ratio)
Ratio = (EUR 15,000 - taxable income)/EUR 7,000
|15,001 to 55,000||
The tax credit is equal to:
EUR 1,297 x ratio
Ratio = (EUR 55,000 - taxable income)/EUR 40,000
Self-employment income tax credit
The self-employments tax credit is determined as follows:
|Non-employment income (EUR)||Tax credit amount (EUR)|
|Up to 4,800||1,104|
|4,801 to 55,000||EUR 1,104 is the maximum annual amount allowed, which decreases with the increase in taxable income, up to EUR 55,000 of taxable income|
The above income tax credits will be proportioned to the days of work or pension during the tax year.
However, the tax credit applicable to employment income not exceeding EUR 8,000 and to pension income not exceeding EUR 7,750 should not be lower than EUR 690.
Family tax credits
Family tax credits are granted to resident taxpayers with a dependent spouse, children, and other relatives living with the taxpayer, provided that each dependant’s annual income does not exceed EUR 2,840.51. For children under 24 years of age, the income limit to be considered has been raised to EUR 4,000 from FY 2019.
Family tax credits are rated monthly and are applied as of the month in which the conditions verify and up to the month in which conditions stop.
The family tax credit varies according to dependent spouse and family dependants.
|Dependants||Tax credit amount (EUR)|
|Dependent spouse||EUR 800 is the maximum annual amount allowed, which decreases with the increase in taxable income, up to EUR 80,000.|
|Children below three years of age *||EUR 1,200 is the maximum annual amount allowed for each child, which decreases with the increase in taxable income, up to EUR 95,000.|
|Children above three years of age *||EUR 950 is the maximum annual amount allowed for each child, which decreases with the increase in taxable income, up to EUR 95,000.|
|Other dependants||EUR 750 is the maximum annual amount allowed, which decreases with the increase of the taxable income, up to EUR 80,000.|
* For each handicapped child the applicable basic tax credit shall be increased by EUR 400.
For taxpayers with more than three dependant children, the applicable basic tax credit should be increased by EUR 200 for each child.
The child deduction must be imputed at 50% to both parents when none of them is considered as a dependant of the other for tax purposes; where the parents are separated or divorced, the entire deduction shall be imputed to the parent having custody of the child.
As of 2007, Italian tax law grants an additional tax credit equal to EUR 1,200 to taxpayers who have at least four dependant children.
Other tax credits
Some other expenses entitle the taxpayer to a tax credit. The tax rate is 19% of the total amount paid.
Mortgage interest credit
Tax credit is granted on interest on real estate mortgage loans issued from banks of the European Union, financial institutions, or other EU entities if they refer to the ‘habitual abode’ in Italy. Other requirements (e.g. year when the contract was signed) must be satisfied to be eligible.
The tax credit is equal to 19% of the mortgage interests paid. The maximum deductible amount is EUR 4,000.
Medical expenses credit
The tax credit is equal to 19% of the medical expenses paid for the amount exceeding EUR 129.11 if duly supported by receipts.
Education expenses credit
University expenses are deductible up to an amount equal to the cost charged by public educational institutions fixed by the education authority each year.
For nursery, elementary, secondary, and high school, the total maximum educational expense on which will be calculated the 19% rate is EUR 800 per annum per child.
School fees for registration of children up to three years old are deductible on the above percentage of the maximum amount of expenses of EUR 632.
Life and accident insurance credit
Life and accident insurance is deductible, only if related to the case of death, invalidity, or non-self-sufficiency, for the maximum amount of EUR 530.
Sporting association’s fees credit
Sporting association’s fees for children between five and 18 years old are deductible on the above percentage of the maximum amount of expenses of EUR 210.
Rental fees credit
A fixed amount tax credit, depending on the total income of the taxpayer, for annual rental fees paid for the principal abode is available under certain conditions (this tax credit can be used just for incomes under EUR 30,987.41).