Italy Income Tax Guide 2025: Progressive Rates, Regional Taxes, and Deductions

Italy Income Tax Guide 2025: IRPEF, Regional & Municipal Taxes Explained

Italy operates a multi-layered income tax system that can be complex for both residents and expats. The main income tax is IRPEF (Imposta sul Reddito delle Persone Fisiche), which uses progressive rates from 23% to 43%. However, what makes Italy unique is the additional layer of regional taxes (Addizionale Regionale) and municipal taxes (Addizionale Comunale) that are applied on top of IRPEF. This three-tier system means your total tax burden can be significantly higher than the base IRPEF rates suggest, making it essential to understand all components of Italian taxation.

Understanding IRPEF Tax Brackets 2025

IRPEF is Italy's national income tax, calculated on your taxable income after deductions. The progressive brackets for 2025 are: 23% for income up to €15,000 per year - This is the entry-level bracket for lower-income earners. 25% for income between €15,000 and €28,000 - This covers lower-middle income workers. 35% for income between €28,000 and €50,000 - This bracket affects most middle-income professionals. 43% for income above €50,000 - This is the top bracket for higher earners. These rates apply progressively, meaning you only pay the higher rate on income within each bracket. For example, if you earn €40,000, you pay 23% on the first €15,000, 25% on income between €15,000 and €28,000, and 35% on income between €28,000 and €40,000.

Regional Tax (Addizionale Regionale)

Each of Italy's 20 regions can impose an additional regional tax on top of IRPEF. Regional tax rates vary significantly by region, typically ranging from 0.9% to 3.33% of your taxable income. Some regions like Lombardy, Veneto, and Lazio have higher rates, while others offer lower rates or exemptions. For example, Lombardy (where Milan is located) typically charges around 1.23% regional tax, while some southern regions may charge higher rates. The maximum regional tax rate is capped at 3.33%, but most regions charge less. This regional variation means that two people earning the same salary but living in different regions will pay different amounts of tax.

Municipal Tax (Addizionale Comunale)

Municipalities (comuni) can also add their own tax on top of IRPEF and regional tax. Municipal tax rates are typically much lower, usually ranging from 0.1% to 0.9% of taxable income, with a maximum cap of 0.9%. Most municipalities charge between 0.2% and 0.5%. Larger cities and municipalities with higher costs may charge closer to the maximum, while smaller towns may charge less or nothing at all. This three-tier system (national + regional + municipal) can add 1-4% to your effective tax rate beyond the base IRPEF rates.

Social Security Contributions

In addition to income taxes, Italian employees pay social security contributions (Contributi Previdenziali) of 9.19% of gross salary. This is the employee portion, with employers contributing significantly more. These contributions fund the Italian pension system (INPS - Istituto Nazionale della Previdenza Sociale), unemployment benefits, and other social programs. Social security contributions are mandatory for all employees and are deducted directly from your gross salary before calculating income tax.

Calculating Your Total Tax Burden

To calculate your total tax in Italy, you must add: IRPEF (progressive 23-43%), Regional tax (0-3.33% depending on region), Municipal tax (0-0.9% depending on municipality), and Social security (9.19% of gross). For example, if you earn €40,000 gross in Milan (Lombardy): Social security: €3,676 (9.19%), Taxable income: €36,324, IRPEF: approximately €7,500-8,000 (progressive), Regional tax: approximately €450 (1.23%), Municipal tax: approximately €180 (0.5%), Total deductions: approximately €11,800-12,300, Net salary: approximately €27,700-28,200 per year, or €2,300-2,350 per month.

Tax Deductions and Allowances

Italy offers various deductions that can reduce taxable income, including: Work-related expenses (spese deducibili), Dependent deductions (for spouses and children), Health and medical expenses, Education expenses, Mortgage interest (for primary residence), Charitable donations, and Pension contributions. Understanding and properly claiming these deductions can significantly reduce your IRPEF base, which also reduces your regional and municipal taxes proportionally.

Filing Italian Tax Returns

All employees in Italy must file an annual tax return (Dichiarazione dei Redditi) by November 30th of the following year (extended deadlines available). Even though taxes are withheld at source, filing a return allows you to: Claim deductions and allowances, Adjust for overpayment or underpayment, Declare additional income sources, and Optimize your tax situation. Many Italians use tax software or hire commercialisti (tax advisors) to ensure proper filing and maximize deductions.

Special Considerations for Expats

Expats working in Italy face additional considerations: Tax residency rules (183 days or primary residence), Flat tax regime for new residents (available under certain conditions - 7% flat rate on foreign income), Double taxation treaties to avoid being taxed twice, and Understanding which regional and municipal rates apply in your location. The regional and municipal tax variations make location choice important for tax planning.

Disclaimer: Italian tax rates vary by region and municipality and are updated annually. The information provided here is based on 2025 federal rates and typical regional/municipal rates. Always consult with a qualified Italian tax advisor (commercialista) or visit the Agenzia delle Entrate website for the most current rates and personalized advice for your specific region and municipality.