Italy

Italy TFR Severance Pay 2025: Calculation, Taxation, and Advance Requests

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Italy TFR Severance Pay 2025: Calculation & Tax Guide

Italy's Trattamento di Fine Rapporto (TFR) is a severance payment accrued by all employees, payable upon termination, resignation, or retirement. In 2025, TFR equals approximately one month's salary per year worked, taxed separately from ordinary income. Understanding accrual calculations, taxation methods, advance payment options, and transfer procedures is essential for maximizing your severance benefits.

TFR Accrual Calculation

TFR accrues annually as follows:

  • Formula: (Gross Annual Salary / 13.5) × years worked
  • Revaluation: Accumulated TFR is indexed annually by 1.5% + 75% of inflation (ISTAT index).

Calculation Example

Employee earning €35,000 gross annually for 10 years:

  1. Annual TFR Accrual: €35,000 / 13.5 = €2,593
  2. Total Before Revaluation: €2,593 × 10 years = €25,930
  3. Revaluation (estimated 3% average): +€3,500
  4. Total TFR at Termination: ~€29,430

TFR Payment Timing

  • Resignation or Dismissal: Payable within 30-60 days of employment end (specific timing depends on reason).
  • Retirement: Full TFR paid upon reaching state pension age or early retirement.
  • Death: TFR transferred to heirs/spouse.

TFR Taxation (Tassazione Separata)

TFR is taxed separately from annual income using tassazione separata, which applies average tax rates from previous years to prevent bracket jumps.

Calculation Method

  1. Calculate average tax rate from last 5 years of employment income (or years worked if less than 5).
  2. Apply this average rate to TFR amount.
  3. Typically results in effective rate of 20-30% for middle-income earners.

Tax Example

Employee with average IRPEF rate of 25% over 10 years, TFR of €29,430:

  • TFR Tax: €29,430 × 25% = €7,358
  • Net TFR: €29,430 - €7,358 = €22,072

TFR Destination Options

Employees in companies with 50+ employees must choose TFR destination:

1. Leave with Employer (In Azienda)

  • TFR remains with employer until termination.
  • Accrues with annual revaluation (1.5% + 75% inflation).
  • Available for advance requests (see below).

2. Transfer to Pension Fund (Fondo Pensione)

  • TFR contribution (6.91% of gross) transferred to supplementary pension fund.
  • Invested for retirement; higher potential returns but market risk.
  • Tax Advantage: Pension fund payouts taxed at 9-15% vs TFR's 20-30%.
  • Not available for advances (locked until retirement).

3. INPS Treasury Fund (Fondo di Tesoreria)

  • Automatic if no choice made in companies with 50+ employees.
  • Managed by INPS; payable at termination like employer-held TFR.
  • Similar revaluation and taxation as in-azienda option.

TFR Advance Payments (Anticipazione TFR)

Employees can request up to 70% of accrued TFR while still employed for specific reasons:

Eligible Reasons

  • First Home Purchase: For employee or children (most common).
  • Medical Expenses: Extraordinary healthcare costs for employee or dependents (surgery, long-term care).
  • Parental Leave: During maternity/paternity leave (up to 6 months unpaid leave).

Advance Conditions

  • Minimum 8 years of service with current employer.
  • One advance per employment relationship.
  • Annual limit: Max 10% of eligible employees can request advances.
  • Documentation required: Purchase agreement (first home), medical invoices, leave certificates.

Taxation of Advances

Advances taxed immediately using tassazione separata (same method as final TFR). Net amount paid to employee; final TFR reduced proportionally.

TFR and Company Size

  • Under 50 Employees: TFR remains with employer by default; can voluntarily transfer to pension fund.
  • 50+ Employees: TFR automatically flows to INPS treasury unless employee opts to keep with employer or transfer to pension.

TFR Upon Resignation vs Dismissal

Resignation (Dimissioni)

  • TFR paid in full within 30-60 days.
  • No reduction or penalties; full accrued amount transferred.
  • Submit resignation via official INPS portal (Dimissioni Telematiche) to document and protect TFR rights.

Dismissal (Licenziamento)

  • TFR paid immediately upon termination.
  • Includes preavviso (notice period) accrual.
  • Combined with other severance entitlements (NASpI unemployment benefits separate).

TFR for Fixed-Term and Temporary Contracts

  • Fixed-Term (Contratto a Tempo Determinato): TFR accrues pro-rata; paid at contract end.
  • Temporary/Agency Workers (Somministrazione): TFR managed by agency; transferred to employee at assignment end.
  • Internships (Stage): No TFR accrual (interns are not employees under Italian law).

Maximizing TFR Value

  • Transfer to Pension Fund: If young and planning long career, pension fund offers tax advantages (9-15% vs 20-30%) and investment growth.
  • Leave with Employer: If planning to request advance for home purchase within 8 years, keep TFR in-azienda.
  • Monitor Revaluation: Check annual statements (busta paga TFR line) to verify revaluation application.
  • Time Resignation: Resign early in month to maximize final month's accrual (accrues monthly, not daily).

Common TFR Mistakes

  1. Not Choosing Destination: Companies with 50+ employees default to INPS treasury; actively choose pension fund if preferred.
  2. Requesting Advance Prematurely: Depletes retirement savings; use only for essential needs (first home, medical).
  3. Ignoring Tax Optimization: Pension fund transfer reduces lifetime tax burden significantly versus TFR lump sum.
  4. Not Documenting Resignation: Use official INPS portal to protect TFR entitlement and prevent disputes.
  5. Forgetting Revaluation: Ensure employer applies annual indexation; errors compound over years.

TFR Payment Disputes

If employer delays or withholds TFR:

  • Contact Employer HR: Request written confirmation of payment date and amount.
  • Union Support: Engage trade union for negotiation and legal assistance.
  • Labor Court (Tribunale del Lavoro): File claim for delayed payment plus interest and legal costs.
  • INPS Intervention: For companies in financial distress, INPS Garanzia TFR fund ensures payment.

Next Steps: Use our Italy TFR calculator to estimate your severance amount based on years worked and gross salary. Review your annual payslip for TFR accrual line and confirm destination choice (employer, pension fund, or INPS).

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