Employee benefits
Contract renewal increases: Italy’s 5% substitute tax in 2026
Employee benefits · · 2 min read
By Lorenzo Schiavone · calculator developer
Eligible private-sector contractual increases paid in 2026 can use 5% substitute tax instead of IRPEF and local taxes. The national collective agreement must have been renewed between 1 January 2024 and 31 December 2026, and 2025 employment income must not exceed €33,000.
Signing date, payment and income
The signing date of the actual national renewal matters, rather than its economic start date. Implementing indexation acts, bridge agreements and second-level bargaining are outside this measure.
Payment must be in 2026; the extended cash principle also covers sums relating to 2026 paid by 12 January 2027. Add employment income across all 2025 employers. CU 2026 certifies that 2025 income. The employer applies the measure unless the worker opts out in writing.
Earlier tranches and included pay
Eligible amounts paid in 2026 include recurring renewal tranches that started in earlier years, not just a new tranche starting in 2026. Ordinary and additional salary payments qualify within the direct-pay rules.
A personal superminimo absorbed by the contractual increase can qualify; an independent unabsorbed superminimo does not automatically qualify. Circular 3/E also addresses paid leave and certain allowances incorporated into direct pay.
Seniority steps, overtime and additional hours, shift premiums, one-off sums and TFR are excluded. Night or holiday pay may have its separate 15% measure. Impatriati does not further exempt the same substitute-taxed slice.
Taxable amount and example
There is no monetary cap on the eligible increase. For €1,200 gross with only 9.19% IVS, contributions are €110.28 and taxable pay is €1,089.72. Tax at 5% is €54.49, leaving approximately €1,035.23 before other annual effects.
Enter the increase as a distinct part already inside RAL and compare the full annual result with ordinary taxation. The benefit is currently provided for 2026 payments, including the extended cash window; do not assume a 2027 extension.
Frequently asked questions
Do tranches starting in 2024 or 2025 count? ▾
Eligible recurring amounts paid in 2026 can count even where their tranche began earlier, provided the renewal meets the signing-date conditions.
Does €33,000 cap the increase? ▾
No. It caps previous-year employment income for eligibility, rather than the amount of the increase.
Sources and method
- Agenzia delle Entrate · circular 3/E · 24 June 2026
- Agenzia delle Entrate · circular 2/E · 24 February 2026
- Ministry of Labour · 2026 budget measures
- QuantoNetto · calculation method and limitations
An informational guide to the 2026 rules. Examples are annual estimates under the stated assumptions. Average pay does not reproduce a monthly payslip. Prior-year municipal rates are marked as estimates.