Pay rises from contract renewals; the scope of the 5 per cent substitute rate is being extended
Circular 3/E from the Agency provides further clarification on the tax relief measures for income from employment provided for in the Budget Act
by Mauro Pizzin
Key points
- Cash allowance
- Pay rises prior to the signing of the National Collective Labour Agreement
- Absorbable superminimum
- Holidays, holiday allowance and the cancelled public holiday on 4 November
- Sunday surcharge
- Vertical part-time
- Overtime on public holidays or at night
- On-call and overnight allowances
- Absence or non-application of a national collective labour agreement
- Returnees, lecturers and researchers
Substitute taxes on contract renewals and on bonuses and allowances for night work, work on public holidays and on weekly rest days, or for shift work, as provided for by Law 199/20265 (2026 Budget), are once again under scrutiny by the Revenue Agency, which, to resolve further interpretative doubts regarding the application of Article 1, paragraphs 7, 10 and 11, has published the Circular 3/E/2026, which follows on from the previous Circular 2/E/2026 of 24 February.
It should be noted, in this regard, that Article 1(7) of the 2026 Budget Act introduced a substitute tax of 5% for private-sector employees on pay rises paid in 2026 pursuant to collective agreements signed in 2024, 2025 and 2026. The substitute tax applies where income from employment in the year 2025 does not exceed 33,000 euros, even if derived from multiple employment relationships. The 15% substitute tax on allowances for night work, work on public holidays, on the weekly rest day and shift allowances, up to an annual limit of €1,500 for workers with income from employment not exceeding €40,000 in 2025, was in turn introduced by Article 1, paragraph 10, of the Budget Law. Below are the main clarifications contained in the circular.
Cash allowance
Where national collective labour agreements provide for increases in allowances paid monthly in connection with the performance of duties, such as cashier’s allowances or variable allowances, a 5% substitute tax applies to them, since these allowances are paid monthly and form part of ordinary remuneration, and the pay increase also applies to these allowances.
Pay rises prior to the signing of the National Collective Labour Agreement
The Agency also considers increases resulting from contract renewals signed during the three-year period 2024–2026 even if they relate to periods prior to the signing of the contract, provided they are paid out between 1 January 2026 and 31 December 2026. However, the tax relief does not apply in the case of amounts provided for in the renewal but paid out as a ‘one-off’ payment.
Absorbable superminimum
In the event that the amount allocated to the employee as superminimo, the employee may still benefit from the substitute tax even if it was granted under an individual agreement between the employee and the employer.
