Rome, June 28, 2020 – Waiting for a wider tax reform, he underlines Luigi Di Maio on social networks, from Wednesday 1 July “will be effective cutting of the tax wedge that will affect 16 million workers. It means more money in your paycheck, with increases of up to € 100 per month. “
But how does it work? The cut of the tax wedge on the salaries of employees is foreseen by a government law decree passed in March, which in turn implemented a budget law rule that allocated 3 billion for 2020 and 5 billion for 2021 for the reduction of the tax burden on employees, extending the audience of the current € 80 Irpef bonus which is now repealed.
Tax wedge, what is it
It is the difference between the cost of labor incurred by the employer and the net remuneration received by the worker and indicates that part of the labor cost that is paid in the form of income tax or social security contributions, net of any monetary transfers enjoyed by the worker. With a tax wedge for an average childless worker equal to 47.9% of the cost of labor, Italy ranks third in 2018 (after Belgium and Germany) in the OECD countries’ ranking.
Wedge cut, who will benefit
In essence, according to the conversion law of decree no. 3/2020 approved on March 31, 2020 definitively by the Chamber, for employees with incomes between € 8,174 and € 28,000, the bonus is recognized directly in the paycheck, for an amount equal to € 100 per month, while for higher incomes, and up to 40,000 euros, a new tax deduction is instead recognized.
In recent days, Prime Minister Giuseppe Conte had indicated this as “the right direction that we must pursue”. But let’s see what will change in practice.
Bonus for 16 million employees
A so-called “enhanced” tax bonus arrives. In practice, for employees with incomes of up to € 28,000, the tax wedge bonus will be recognized directly on the paycheck, for an amount of € 100 per month. In all, it is 600 euros more recognized on salaries in the second half of the year. For higher incomes, and up to the limit of 40,000 euros, a new tax deduction will be recognized.
The decree provides for a supplementary bonus, starting from July, for income from employed and assimilated work, provided that the gross tax due is greater than the amount of the deduction due for employed and assimilated work. this ‘enhanced’ bonus it is related to the number of working days for services rendered from 1 July and is therefore equal to 600 euros for 2020 and 1,200 euros per year for 2021 (only if the total income does not exceed 28,000 euros).
Tax substitutes are called to recognize the supplementary treatment by distributing the amount on the wages paid, checking the amount due in the adjustment. The treatment not due can be recovered from the substitutes of tax through the institution of the compensation. The number of beneficiaries, including private and public employees, thus increased by 4.3 million, from 11.7 million who receive the 80 euro to 16 million bonus.
Temporary deduction
A tax deduction is foreseen for employee and similar income from € 28,000. The amount of the deduction is equal to 600 euros with a total income of 28,000 euros and decreases until it reaches zero upon reaching an income level of 40,000 euros. The deduction is temporary, as it applies for services from 1 July to 31 December 2020, in view of a structural revision of the deduction system.
Installment for return
The installments are doubled from 4 to 8 in case of repayment both for the “enhanced” bonus and for the deduction. The threshold of 60 euros remains above which the installments can be requested.
Stop al bonus 80 euro
The 80 euro bonus, called the Renzi bonus, is abrogated from 1 July.
The criticisms
Not everyone likes the measure. For example, although Confesercenti positively evaluates any tax relief, it maintains that the intervention on VAT is the most effective: in fact, with the same reduction, a lowering of the value added tax, entirely transferred to the final prices, generates 25 % more increase in household spending compared to a reduction in the tax wedge.
