Tax Reform

Tax Reform 2025: How cutting the tax wedge limits IRPEF deductions for incomes up to EUR 40,000

Increased employment deductions reduce the Irpef tax base, limiting access to other tax bonuses for taxpayers with average incomes

by Luca De Stefani

29 April 2026

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2' min read

Translated by AI

Versione italiana

2' min read

Translated by AI

Versione italiana

The mockery of deductions: as the discounts for employment increase, so as to reduce the tax wedge, the scope of the Irpef to be declared is reduced. And this cuts the possibility of benefiting from further tax discounts, first and foremost the bonus linked to building renovations.

In fact, raising the 'discounted' base increases the number of employees with a total income of less than 40,000, who, as of 2025, risk being 'incapable' of receiving Irpef for the purposes of using the other tax deductions, deriving from expenses actually incurred (building bonuses, medical expenses, education expenses, etc.), with a reduction in the net amount available.

News 2025

The mechanism? Between 2024 and 2025, there is a shift from the partial exemption of employees' social security contributions to the increase of thelump-sum deductions.

There are two measures: an additional one-thousand euro deduction and the increase from 1,880 to 1,955 euro of the employment deduction.

In particular, as of 2025, the following 'further deduction' from the gross Irpef was introduced for employee income (excluding pension income), with a total income of more than 20,000 euro and up to 40,000 euro:

if the total income is between 20,001 euro and 32,000 euro, the one thousand euro equals one thousand euro;
if the total income is between 32,001 euro and 40,000 euro, the one thousand euro is progressively reduced until it reaches zero when the threshold of 40,000 euro is reached.

If, on the other hand, the total income does not exceed 20,000 euro, holders of employment income (not for pension income) are entitled to the so-called"additional sum" (charged to the Treasury), not taxable to Irpef, determined by applying to the taxpayer's employment income the percentage: of 7.1% if the employment income does not exceed 8.500 euro; of 5.3% if it is above 8,500 euro but not above 15,000 euro; of 4.8% if it is above 15,000 euro and up to 20,000 euro.

This 'additional sum' paid to employees - as mentioned - is borne by the Treasury and can be recognised directly by the substitute or used with the declaration.

The amounts of the 'additional deduction' and the increase in the employee deduction (as well as the 'additional sum') have essentially replaced the partial exemption of employees' social security contributions provided for in Article 1, paragraph 15 of Law 213/2023. Only for 2024, in fact, employees with a taxable salary, calculated on a monthly basis for thirteen months, not exceeding EUR 2,692, net of the 13th month bonus, were granted an exemption of 6% of the share of social security contributions charged to them.

The 2024-2025 Variation

So, to simplify, for the same 'net in the pay packet' received by the employee, between 2024 and 2025 there was a change in deductions, from a partial exemption of employee social security contributions to an increase in lump-sum deductions, consisting of the increase from EUR 1,880 to EUR 1,955 of the employee's social security contribution and the EUR 1,000 of the 'additional deduction' (as well as the 'additional sum').

These two deductions, however, have reduced the Irpef potentially 'reducible' with othertax benefits, stemming from expenses actually incurred (medical expenses, building bonuses, education expenses, etc.).

This was in contrast to 2024, when these deductions could be 'used' to reduce Irpef, moreover, after having benefited from the partial exemption of their social security contributions (no longer applicable from 2025).

Many employees will therefore be 'incapable' Irpef of using these deductions from 2025, with a reduction in the net amount received.