Deductions and tax credits: where each one enters the IRPEF calculation

Sara is an employed graphic designer in Turin with total income of €40,000. She has two receipts of €1,000 each. Her accountant tells her one is worth €330 of tax and the other €190. Same amount spent, different result: the first expense is a deduction, the second a tax credit, and the two rules come into play at different stages of the calculation.

Two routes inside one calculation

Anyone filing a 730 return meets two families of expenses that cut tax: oneri deducibili, which we will call deductions, and oneri detraibili, which work as tax credits. Italians say both let you «scaricare» an expense, and that phrase suggests they are equivalent. They are not. They act at two successive stages and their value follows opposite logic.

The starting point is Article 11 of the consolidated income tax code, the TUIR. Paragraph 1 applies the bands to total income taken «net of the deductible charges listed in Article 10». A deduction therefore comes before the rates: it removes income from the base the bands work on.

Paragraph 3 of the same article covers the next step. Net tax is obtained by applying to gross tax the credits provided for in Articles 12, 13, 15, 16 and 16-bis and in other laws, «up to the amount» of that tax. A credit comes after the rates: it removes euros from tax already computed and cannot go beyond it.

So there are three stages. Start from total income; subtract deductible charges and apply the bands, which gives gross tax; subtract tax credits from gross tax, which gives net tax. Every relief has to be placed in one of these stages before asking how much it is worth.

A deduction is worth your tax band

A deduction shrinks the income that gets taxed. The saving it produces equals the amount deducted multiplied by the rate that income would have borne. That is the marginal rate, the rate of the highest band the taxpayer reaches, because a deduction always strips away the last euros earned, never the first ones.

For 2026, Article 11 sets three bands: 23 percent up to €28,000; 33 percent above €28,000 and up to €50,000; 43 percent above €50,000. The middle band was cut from 35 to 33 percent by the 2026 budget law.

Hence the first working rule. A €1,000 deduction for someone declaring €20,000 removes income taxed at 23 percent, a €230 saving. For someone declaring €40,000 it removes income taxed at 33 percent, €330. For someone declaring €60,000 it removes income taxed at 43 percent, €430.

A deduction is therefore as progressive as the tax it reduces. For the same spending it rewards higher earners more. That is not a flaw in the rule but a direct result of where it bites: if the euro taken out of the base would have been taxed at 43 percent, the saving is 43 cents.

One case needs an extra step: when the deduction pushes income below a band limit. The part of the deduction sitting above the limit saves at the higher rate; the part that falls below saves at the lower one. Split the amount in two and price each piece separately.

One last consequence that is easy to miss. A deduction lowers the taxable base, not the «total income» that many rules use as a threshold. Article 11 keeps the two ideas apart. The Revenue Agency's page on medical expenses applies this to dependants: their income limit is measured before deductible charges.

A tax credit is a fixed share of the expense

A tax credit works the other way round. The saving does not depend on the band: it is a percentage fixed by the rule for that expense, and the same for everyone. For Article 15 medical expenses, the Agency notes, you credit 19 percent of the part above the excess; for renovation work the percentages differ.

So €1,000 of an expense credited at 19 percent is worth €190 whether you declare €20,000, €40,000 or €60,000. For a first-band taxpayer the credit falls a few points short of a deduction; for a top-band taxpayer the gap widens to 24 points.

Credits are not always fixed in absolute terms, though. Several of them shrink as income rises, and since 2025 anyone with total income above €75,000 faces a cap on the sum of credit-bearing expenses. These rules change how large the credit is, not how it works: it still cuts gross tax.

Credits also carry formal conditions that deductions do not share in the same terms. Since 2020 the 19 percent credit is only available when payment is traceable, with exceptions for medicines, medical devices and services from the national health service or accredited private facilities.

When there is not enough tax: incapienza

This is where the two routes part company. A credit comes off gross tax «up to the amount» of that tax: if credits exceed the tax, the surplus has nothing left to reduce. The Agency states it plainly: the excess cannot be claimed back as a refund, nor used in the following tax year.

Italians call this incapienza, insufficient tax capacity. It mostly hits people on low incomes, because the credits for employment or pension income already absorb much of their gross tax. An extra credit-bearing expense can then be worth far less than its percentage, or nothing, even though it was paid and documented correctly.

A deduction also achieves little in that position. If the other credits wipe out the tax anyway, taking income out of the base lowers a gross tax that would have been cancelled regardless. The difference is that the credit simply vanishes, while the deduction trims a gross tax the other credits were meant to cover.

Within a household this reasoning drives real decisions, as far as the rules allow. For credits the Agency requires the expense to be genuinely borne by the person claiming it and documented in their name. Who pays and whose name is on the invoice are not details: they decide whose tax gets reduced.

Comparing them on the numbers

The comparison must always be made in euros of tax, not in percentages. For a deduction, multiply the amount by the marginal rate, splitting it if it crosses a band limit. For a credit, multiply the eligible amount by the rule's percentage, then check there is enough gross tax left to absorb it.

The table shows why neither route wins across the board. A 19 percent credit is worth less than a deduction in all three bands, because even the lowest rate is above 19. Other credits carry much higher percentages, though, and then the comparison flips for people on lower incomes.

In most cases the taxpayer does not choose. The law decides whether an expense is deducted or credited, and Article 15 says so expressly: the medical expenses it credits are those «other than those listed in Article 10». Comparing the two helps you forecast the outcome, plan, and choose between alternative ways to spend.

Read the rule before the number

The method used throughout this course never changes. First, find the rule that recognises the expense and the verb it uses: «are deducted» or «is credited». Second, read the cap on the amount, if there is one. Third, turn the amount into euros of tax using either the marginal rate or the rule's percentage.

• Which rule: TUIR Article 10 or a law referring to it, or Article 15 or another credit
• The verb: «deducted from total income» or «credited against gross tax»
• The cap: annual ceiling, share of income, excess
• The value: amount times marginal rate, or amount times percentage
• Capacity: is there enough gross tax left after the other credits?

Run through Sara's two receipts, the method gives back her accountant's figures. The first expense is a deductible charge: €1,000 taken off €40,000 of income, inside the second band, is worth €330. The second is credited at 19 percent: it is worth €190, because her gross tax is large enough to absorb it.

A last word on sources. This course quotes the consolidated TUIR published by the Gazzetta Ufficiale, as it applies to 2026. The Gazzetta already flags Articles 10, 11 and 51 as repealed by Legislative Decree 117 of 19 June 2026: later years will need rereading in the new code.