Italy's Employment Tax Credits in 2026: Why Net Pay Rises Faster on Lower Salaries

If you hire in Italy, you will see something that surprises many US finance teams. Net pay does not move in a straight line with gross pay. At lower salaries, each extra euro of gross turns into more net than you might expect. At higher salaries, it turns into less.

The reason is a set of tax credits and relief measures built into Italian personal income tax, called IRPEF. This article explains how they work, in plain terms.

The base: three tax brackets  

IRPEF is progressive. The rates are:

• 23% on income up to EUR 28,000
• 33% on income from EUR 28,000 to EUR 50,000
• 43% on income above EUR 50,000

On their own, these brackets would give a steady rise in tax as pay grows. But three other mechanisms change the picture for employees.

1. The employee tax credit  

Every employee gets a tax credit that reduces the tax owed. Its size depends on annual income. It is largest at low income and shrinks as income grows.

Here is how it works:

• Up to EUR 15,000 of income, the credit is EUR 1,955. There is a floor of EUR 690. For fixed-term contracts, the figure is EUR 1,380.
• From EUR 15,000 to EUR 28,000, the credit is EUR 1,910 plus a variable part. The variable part is EUR 1,190 multiplied by (28,000 minus income), divided by 13,000. The higher the income, the smaller this part.
• From EUR 28,000 to EUR 50,000, the credit is EUR 1,910 multiplied by (50,000 minus income), divided by 22,000. It falls steadily toward zero.
• Above EUR 50,000, the credit is zero.
• For incomes between EUR 25,000 and EUR 35,000, there is an extra EUR 65.

Now think about what this does. A raise in the 28,000 to 50,000 range is taxed at 33%. It also shrinks the credit. So the employee loses twice: more tax on the raise, and a smaller credit. The effective burden on that slice of income is higher than the headline rate suggests.

At low income the credit is large and stable, so a raise is mostly taxed at 23% and little else.

2. The payroll wedge relief: income that is not taxed  

Italy also applies a relief aimed at the gap between gross pay and net pay. For lower earners, a share of employment income is simply not taxable. The share depends on the income band:

• Up to EUR 8,500 of income: 7.1%
• From EUR 8,500 to EUR 15,000: 5.3%
• From EUR 15,000 to EUR 20,000: 4.8%

This is a direct boost to take-home pay. It applies to employment income and it is strongest at the bottom of the scale.

3. The additional credit for middle incomes  

A further tax credit of EUR 1,000 applies for incomes between EUR 20,000 and EUR 32,000. Between EUR 32,000 and EUR 40,000, it declines gradually to zero.

This matters for hiring plans. Many mid-level roles sit in this range. Net pay for these roles is supported up to EUR 32,000, then the support fades.

Why net pay rises faster at lower salaries  

Put the three pieces together.

• At the low end, the 23% rate is the only bracket in play. The employee tax credit is at or near its maximum. The untaxed share of income is at its highest percentage. Each extra euro of gross is cushioned on all fronts.
• In the middle, the 33% bracket starts at EUR 28,000. At the same time, the employee credit starts to shrink and the additional EUR 1,000 credit fades out between EUR 32,000 and EUR 40,000. The net gain from each extra euro of gross drops.
• At the top, above EUR 50,000, the 43% rate applies and the employee credit is zero. There is no relief left to offset the rate.

The result is a net pay curve that is steep at lower salaries and flatter at higher ones. A given gross raise produces a larger net improvement for a junior employee than for a senior one.

What this means for you  

For US founders and finance teams, three practical points follow.

1. Do not scale net pay linearly. If you know the net figure for one salary, you cannot extrapolate it to another. Each salary needs its own calculation.
2. Offers near the thresholds need care. The points around EUR 28,000, EUR 32,000 and EUR 50,000 are where relief changes fastest. A small difference in gross can mean a larger difference in net than you expect, or a smaller one.
3. Fixed-term contracts are treated differently. The employee credit floor for fixed-term roles is EUR 1,380, against EUR 690 for others at the lowest incomes. Contract type can affect net pay.

The figures here come from a secondary source. Before you sign off on an offer, confirm the numbers with your payroll provider.

Summary  

Italian tax is progressive, and the relief for employees is front-loaded. The employee credit, the untaxed share of income and the additional credit all favor lower salaries. Together they explain why net pay grows faster at the bottom of the scale than at the top.

To see what a specific salary means in net pay and total cost, try our cost calculator.