Your guide to the 2022 Italian individual income tax cut

If you reside in Italy, we’ve got great news—in 2022, you may benefit from a tax cut! The tax reduction legislation, written up by the Draghi government, calls for the lowering of IRPEF (the Italian income tax) and updating the rates in early 2022. The reform will affect approximately 28 million taxpayers, with proportional savings according to your tax bracket. It is projected that every taxpayer will save €264 euro per year, on average. The bill is still in the process of being approved, and must obtain a vote of confidence from the House following the green light from the Senate and Budget Committee. However, the main details of the bill are already available. To help you wrap your head around this change, we’ve prepared a summary of the important facts.

The budget reform includes:

• A reduction of income tax (IRPEF) brackets
• Savings for low-income earners
• An increase in the ‘tax free’ income ceiling

Right now, there are five tax brackets, with tax rates increasing progressively as earnings increase. The brackets are as follows:

• 23% for incomes up to €15,000
• 27% for incomes from €15,000 to €28,000
• 38% for incomes from €28,000 to €55,000
• 41% for incomes from €55,000 to €75,000
• 43% for incomes over €75,000

The tiered nature of the rates will not change. However, there will be a cut in the income tax rates and brackets. The changes are outlined as follows:

• 23% for incomes up to €15,000 (unchanged)
• 25% for incomes up to €28,000
• 35% for incomes up to €50,000
• 43% for incomes over €50,000. 

As you can see, the reform will reduce the number of income tax brackets and lower the expected tax percentage overall. The changes will largely benefit those in the second and third brackets. The highest income tax bracket for incomes over €75,000 will be eliminated and merged with the fourth. In addition, the regional tax on productive activities (IRAP) for the self-employed and freelancers with a VAT number will be eliminated.

Part of the reform also calls for a one-time allocation of €1.5 billion to decrease the “paycheck contribution” tax burden in 2022 for those with incomes below €35,000. Those who fall into this category will receive a discount of 0.8 percent for paychecks issued between January 1 and December 31, 2022. The first estimates show that this will add up to €192 per year—or €16 net per month—for those with an annual income of €35,000. With €25,000 of taxable income, however, there will be net savings of €155, or €13 per month.

The ‘tax free’ ceiling refers to the income threshold that you have to meet in order to incur a tax bill. All income below this threshold isn’t subject to income tax (IRPEF)—though the limit varies slightly depending on your tax status. The ceiling is currently set at about €8,145 for employees, €8,130 for pensioners, and €4,800 for the self-employed.

Starting in 2022, the new ‘tax free’ ceiling will look like this:

• For employees: €8,174
• For pensioners: €8,500
• For the self-employed: €5,550

The government wants individuals in all the brackets to benefit, particularly the self-employed, who will enjoy a €750 increase to the taxable income ceiling.

Some critics have pointed out that the reform will not result in a fair reduction of the income tax owed. In fact, based on calculations carried out by the Italian Parliamentary Budget Office, some have argued that the reform will not have any noticeable effects for around a third of the population. What’s more, the tax cut will not be equal for everyone—those in the income brackets between 35,000 and 50,000 euro per year will benefit the most, while the savings will be very small for low-income earners. For example, a manager will benefit from an average tax reduction of approximately €368—more than twice as much as a blue-collar worker, who will benefit from a tax cut of approximately €162. White-collar workers, however, will see savings of €266—a sizable difference.

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