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Corporate welfare in Italy: what it is worth compared with a pay rise

Article 51 TUIR services, 2026 fringe benefits up to 2,000 euros and performance bonuses at 1% convertible into welfare: company cost, net pay and the rules.

The welfare services under Article 51, paragraph 2, of the Consolidated Income Tax Act (Testo unico delle imposte sui redditi, TUIR) and fringe benefits within the threshold (goods, services and, until 2027, amounts for household utilities, rent or mortgage interest on the main residence) are neither taxed nor subject to social security contributions, whereas a pay rise in the payslip bears contributions and personal income tax (IRPEF) at the marginal rate. The advantage holds only if the plan complies with the rules on who receives it, on the document establishing it and on the form in which it is provided.

The framework

Everything the employee receives in connection with the employment relationship is employment income (Article 51, paragraph 1, Presidential Decree, d.P.R., no. 917 of 22 December 1986), subject to the exceptions in paragraph 2. The most widely used are: works and services for the purposes of education, instruction, recreation, social and health care or worship (letter f, which refers to Article 100, paragraph 1); amounts and services for the education of family members, including school meals, summer camps and scholarships (letter f-bis); care for elderly or non-self-sufficient family members (letter f-ter); public transport passes (letter d-bis). They must be offered to employees generally or to categories of employees and may also be provided through vouchers with a nominal value (paragraph 3-bis).

Fringe benefits are governed by paragraph 3: the ordinary threshold is 258.23 euros, but for 2025, 2026 and 2027 it is raised to 1,000 euros, or to 2,000 euros for employees with dependent children for tax purposes who declare this to the employer, stating their tax codes (Article 1, paragraphs 390 and 391, Law no. 207 of 30 December 2024). The raised threshold also includes amounts paid or reimbursed for household water, electricity and natural gas utilities, for rent of the main residence or for mortgage interest on the main residence; if it is exceeded, the entire amount becomes taxable.

Since remuneration subject to social security contributions is determined under the rules of Article 51 (Article 12 of Law no. 153 of 30 April 1969, as replaced by Article 6 of Legislative Decree, d.lgs., no. 314 of 2 September 1997), as a rule what does not form part of income for IRPEF purposes is also excluded from the contribution base. However, employer contributions to supplementary pension schemes and to health care funds remain subject to the 10% solidarity contribution payable by the employer (Article 9-bis, Decree-Law, d.l., no. 103 of 29 March 1991, converted by Law no. 166 of 1 June 1991; Article 16, Legislative Decree no. 252 of 5 December 2005).

Performance bonuses (premi di risultato) linked to measurable increases in productivity, profitability, quality, efficiency or innovation are subject to a 10% substitute tax (Article 1, paragraph 182, Law no. 208 of 28 December 2015), reduced to 1% up to 5,000 euros for bonuses paid in 2026 and 2027 (Article 1, paragraph 9, Law no. 199 of 30 December 2025). The requirements are employment income in the previous year not exceeding 80,000 euros (paragraph 186) and a company-level or territorial collective agreement (paragraph 187). If the agreement so provides, a bonus converted into welfare does not bear even the 1% (paragraphs 184 and 184-bis). From 1 January 2027 the TUIR provisions cited move into the new consolidated income tax code (Legislative Decree no. 117 of 19 June 2026); for 2026 the rules described remain in force.

What changes in concrete terms

An office employee earns gross pay of 60,000 euros, above the ceiling of the first band of pensionable earnings, which the National Social Security Institute (INPS) updates every year in its circular on contribution rates: on each additional euro he normally pays contributions at 10.19% (9.19% plus the additional 1%) and IRPEF at 43% (Article 11 TUIR). For the company we assume contributions at 30%, a value that varies by sector and size; we disregard severance pay (TFR), workplace accident insurance (INAIL) and regional and municipal surcharges. The amount allocated to the employee is 1,000 euros.

• Ordinary pay rise or bonus in the payslip. Cost to the company 1,300 euros. The employee pays 101.90 euros in contributions and 386.18 euros in IRPEF (43% of 898.10): he is left with 511.92 euros.
• Performance bonus with 1% substitute tax. Cost to the company still 1,300 euros, because contributions remain due, unless the agreement provides for joint employee involvement: in that case, on a portion of up to 800 euros, the employer’s IVS contributions (invalidity, old-age and survivors’ pension contributions) are reduced by 20 percentage points and the employee’s are not due (Article 55, Decree-Law no. 50 of 24 April 2017). The employee pays 101.90 euros in contributions and 8.98 euros in substitute tax: net 889.12 euros.
• Bonus converted into welfare, for example the children’s school fees (letter f-bis). Cost to the company 1,000 euros, value to the employee 1,000 euros.

If instead the same employee is to be left with 1,000 euros net in the payslip, approximately 1,953 euros gross are needed, at a cost to the company of approximately 2,540 euros. To be explained to the employee: no contributions are paid on welfare, so it does not accrue pension entitlement.

In practice

• “Additional” welfare. The employer establishes it through a company regulation or an agreement. For works and services under letter f), if the document creates a contractual obligation on the employer, the cost is fully deductible (Article 95 TUIR); if the provision remains voluntary, the deduction is limited to 5 per mille of personnel expenses (Article 100, paragraph 1; Italian Revenue Agency, Agenzia delle entrate, Circular no. 28/E of 15 June 2016, section 2.1). Amounts and services under letters d-bis), f-bis) and f-ter) are, on the prevailing reading, personnel expenses that are fully deductible (Article 95); administrative practice has not, however, clarified the case of voluntary provision, and as a precaution it is advisable to provide for these too in the regulation as an obligation of the employer.
• Performance bonus. The company-level or territorial agreement sets the criteria for measuring increases over an appropriate period, with verifiable indicators, and provides for the option of conversion into welfare (Circular no. 28/E of 15 June 2016). The company-level agreement must be filed electronically within 30 days of signature, together with the declaration of conformity; those applying a territorial agreement already filed send only the declaration of conformity, with the filing details, before paying the bonuses (Ministerial Decree, d.m., of 25 March 2016, Article 5; Circular no. 28/E, section 1.3).
• Fringe benefits. Before the December payments, the payroll office adds up what has already been granted during the year, including the value of the company car, and collects the declarations on children. Where there is a unitary workplace union representation (RSU, rappresentanza sindacale unitaria), the employer informs it before applying the raised thresholds (paragraph 390, last sentence). Amounts paid by 12 January of the following year also fall within the year’s threshold if they relate to that year (Article 51, paragraph 1).
• To be kept: regulation or agreement, filing receipt, conversion choices signed by employees, invoices and supporting documents for reimbursements, declarations on dependent children.

Mistakes to avoid

• Granting welfare services only to certain employees selected individually: without generality or a homogeneous category, the value becomes taxable again.
• Reimbursing gyms, travel or courses in cash: for letter f only direct provision of the service or vouchers are allowed (Circular no. 28/E, section 2.1); reimbursements are permitted for education and care of family members and for public transport passes (letter d-bis), as well as, within the raised fringe benefit threshold, for household utilities, rent and mortgage interest on the main residence.
• Using welfare in place of the remuneration due: substitution is allowed only for qualifying bonuses and if the second-level agreement provides for it.
• Paying a fixed bonus or one without a verifiable increase: the substitute tax does not apply and the bonus is taxed in the ordinary way.

References

Presidential Decree no. 917 of 22 December 1986, Articles 11, 51 (paragraphs 1, 2, letters d-bis, f, f-bis, f-ter, 3 and 3-bis), 95 and 100, paragraph 1

Law no. 153 of 30 April 1969, Article 12, paragraphs 1 and 4, letter f)

Decree-Law no. 103 of 29 March 1991, converted by Law no. 166 of 1 June 1991, Article 9-bis

Legislative Decree no. 252 of 5 December 2005, Article 16

Legislative Decree no. 314 of 2 September 1997, Article 6

Legislative Decree no. 81 of 15 June 2015, Article 51

Law no. 208 of 28 December 2015, Article 1, paragraphs 182-189

Ministerial Decree of 25 March 2016, Article 5

Law no. 207 of 30 December 2024, Article 1, paragraphs 390 and 391

Law no. 199 of 30 December 2025, Article 1, paragraph 9

Decree-Law no. 50 of 24 April 2017, Article 55

Legislative Decree no. 117 of 19 June 2026

Agenzia delle entrate, Circular no. 28/E of 15 June 2016