Labour, all set for 5% flat tax on increases. Tax light also for nights and holidays

When verifying the threshold, the circular specifies that all employment income received by the employee in the 2025 tax year must be included, even if derived from several employment relationships. The measures apply to employees in the private sector who have an income not exceeding EUR 33,000 in 2025.

The contract renewals are those signed in the years 2024, 2025 and 2026. The circular refers to the technical report, indicating that the evaluation of the estimates is carried out by taking as a reference the data released in July by Istat on collective bargaining agreements.

The substitute tax concerns, subject to the extended cash principle, amounts paid from 1 January to 31 December 2026, if they relate to contractual renewals signed in 2024, 2025 and 2026.

Amounts arising from the same renewals but paid before 1 January 2026 are therefore excluded from the relief. Nonetheless, it is believed that, if the payment of salary increases deriving from contractual renewals, signed in 2024, 2025 and 2026, by virtue of contractual provisions, is spread over several years, the substitute tax is in any case applied to the tranches of increases paid between 1 January and 31 December 2026, even if their payment commenced earlier. In other words, any increment tranches paid this year are in any case covered by the preferential taxation.

The other clarification contained in the circular concerns salary increases that flow into direct remuneration. That is to say, the document explains, 'the twelve months' salary, the thirteenth month's salary and the fourteenth month's salary'.

Also included in the application of the substitute tax are the indirect remuneration institutions affected by the same remuneration increases, such as absences, only for the part supplemented by the employer, which entitle the employee to job preservation (illness, maternity/paternity, accident).

Excluded instead are seniority bonuses and working hours above normal working hours that enjoy bonuses or allowances and bonuses for night or holiday work and shift allowances. The exclusion also concerns the one-off increases in order to fully cover the contractual gap period. On the other hand, it is considered that if the increases envisaged by the contractual renewal absorb the amount by way of superminimum, the latter may benefit from the relief.

In order to benefit from the substitute tax, the circular specifies that no special procedure is provided for, whereas the same employee has the option of availing himself of ordinary taxation, through an express written waiver of the substitute tax.

The substitute tax is levied by the withholding agent, who must pay it using the established tax codes already issued by the Agency in Resolution 3/E of 29 January 2026.

With regard to night work, holidays, weekly rest days and shift allowances, here too the starting rule of the Budget Law must be remembered. With the application of the 15% substitute tax for workers with an income not exceeding 40 thousand euro.

The circular specifies that the sums paid in 2026 are subject to substitute tax on personal income tax and regional and municipal surtaxes, within the annual limit of €1,500. The circular clarifies that the benefit also extends to on-call allowances provided for by collective agreements paid in the same year, and that performance bonuses and sums paid by way of profit-sharing do not count towards this deductible.

For both this measure and the measure on contractual renewals, the circular specifies that in both cases, the income subject to taxation with the substitute tax does not contribute to the formation of total income and, therefore, does not count for the purposes of determining the deductions commensurate with it. Otherwise, in fact, there would be a penalisation for the employee, in contrast with what is, by express statutory provision, the purpose of the provision, namely 'to favour the salary adjustment to the cost of living and strengthen the link between productivity and salary'.