Italy Severance Pay (TFR) 2025: Calculation, Taxation, and Advances

Demystify Italy’s TFR Severance System in 2025

Italy’s Trattamento di Fine Rapporto (TFR) guarantees employees a lump-sum payment when employment ends. Understanding accruals, taxation, and advance options helps professionals plan career moves.

How TFR is Accrued

Employers set aside approximately one month’s salary per year, calculated as annual gross salary divided by 13.5. Accrued TFR is revalued annually using 1.5% plus 75% of inflation, preserving purchasing power.

TFR Allocation

Employees may leave TFR with the employer or transfer future accruals to pension funds (fondi pensione) or open pension plans (pip). Pension fund transfers benefit from tax incentives, but require explicit consent within six months of hiring.

Taxation at Payout

TFR is taxed separately using an average tax rate based on historical income, often lower than current marginal rates. Employers withhold tax, file Form CU, and issue certificates for employees to verify calculations.

Requesting Advances

After eight years of service, employees can request up to 70% of accrued TFR for specific needs (medical expenses, first home purchase, parental leave). Requests are subject to annual employer caps (10% of eligible employees, 4% of total workforce).

Upon Termination

TFR must be paid within 45 days of employment ending. For resignations during maternity, payment occurs immediately. Employers facing financial distress may request payment extensions with employee consent.

Tip: Track TFR accruals via pay slips, discuss pension fund transfers during onboarding, and consult advisors before requesting advances to understand tax impacts.