The tax wedge cut: tax-free sum, extra credit and supplementary payment

Chiara earns 14,000 € a year as a shop assistant and her payslip shows an item nobody explained to her: a sum that carries no tax and is worth 742 euros over the year. Her colleague Luca, on 34,000 euros, has no such line, but he gets an extra credit of 750 euros. These are the two faces of the tax wedge cut.

What the tax wedge means

The wedge is the gap between what an employee costs the company and what reaches their account. Contributions and taxes make it up. The 2025 budget law, law no. 207 of 30 December 2024, narrows it for lower and middle incomes through two tax measures, set out in paragraphs 4 and 6 of its article 1.

The first is a sum that does not form part of income: it is added to the payslip and bears no IRPEF. The second is an extra credit against gross tax, on top of the ordinary employment credit. The two do not overlap; which one applies depends on the band of total income.

Both measures are aimed at people with employment income. Pensioners are left out: the law refers to article 49 of the tax code while excluding pension income, and INPS confirms it in its answers. Nor do they apply to someone whose only income is treated as similar to employment income.

The wedge includes contributions, but these two measures are purely fiscal. They do not reduce the social security deduction or touch the contributions credited with INPS; they act only on taxable income and tax. The worker's pension record therefore still reflects their actual pay.

The tax-free sum up to 20,000 euros

The sum is due when total income does not exceed 20,000 euros. It is worked out by applying to employment income a percentage that falls as income rises: 7.1% up to 8,500 euros, 5.3% above 8,500 and up to 15,000 euros, 4.8% above 15,000 euros.

Mind the structure: this is not a bracket system. The percentage found applies to the whole of employment income, not just a slice. Someone on 18,000 euros receives 4.8% of 18,000, which is 864 euros, rather than a sum of pieces worked out at different rates.

The maximum amounts in the table match those INPS gives in its answers on the wedge cut. Two cliffs stand out: going just above 8,500 euros switches the whole income from 7.1% to 5.3%, and the sum drops. That is what a single percentage per band does.

At 15,000 euros the sum is 795 euros; at 15,100 euros, with 4.8%, it is 724.80 euros. The law accepts these threshold effects for the sake of simplicity. For an employee near a threshold, a modest raise can be worth less than expected in the year it arrives.

Paragraph 5 holds a rule that matters to anyone working part of the year. Solely to pick the percentage, employment income is scaled up to a full year. The percentage found that way, however, is applied to the income actually received, not to the notional figure.

The extra credit between 20,000 and 40,000 euros

Above 20,000 euros of total income the tax-free sum gives way to an extra credit against gross tax, scaled to the period worked. It is worth 1,000 euros when total income is above 20,000 euros and not above 32,000. Between 32,000 and 40,000 euros it shrinks proportionally until it reaches zero.

In the tapering band the law uses a ratio: 1,000 euros multiplied by 40,000 euros minus total income, divided by 8,000 euros. At 36,000 euros the ratio is 0.5 and the credit 500 euros. Above 40,000 euros nothing is due, and anyone past that line gets no benefit from paragraph 6.

Like the ordinary credit, the extra credit is scaled to the period worked. Someone who works six months with total income of 25,000 euros does not receive the full 1,000 euros but the share matching their days of work. The threshold, by contrast, is measured on actual total income.

The income compared with these thresholds also includes the exempt share under certain relief schemes, such as those for workers relocating to Italy and returning researchers. Total income, on the other hand, is taken net of the notional income of the main home and its appurtenances. Paragraph 9 provides for both.

The switch at 20,000 euros is clean. Someone with exactly 20,000 euros of total income receives the 4.8% tax-free sum, 960 euros. Someone with slightly more moves to the full extra credit of 1,000 euros. Unlike the thresholds inside the tax-free sum, this step does not penalise anyone.

The two tools also differ in nature. The tax-free sum is extra money on the payslip, paid even to someone with little or no IRPEF. The extra credit, like any credit, reduces a tax: it is only worth its full amount if there is enough gross tax to reduce.

How the employer applies and recovers the benefit

The employee does not have to ask for anything. Paragraph 7 provides that withholding agents grant the tax-free sum and the extra credit automatically when paying wages, and check entitlement at the year-end adjustment. The employer advances the tax-free sum and recovers it by offsetting it in the F24, as paragraph 8 allows.

The risk lies in the estimates. The employer works on the income it can see. If at year end total income exceeds the threshold, because of a second job for instance, the benefit turns out not to be due and must be returned. When the amount to recover exceeds 60 euros, it is taken back in ten equal instalments.

For someone with a single job all year and no other income, the employer's estimate usually matches the final result. The adjustment changes nothing and the tax return, if filed, confirms the figures. Problems nearly always come from income the employer cannot see.

Anyone with several jobs in the same year, or receiving benefits such as NASpI unemployment pay alongside a salary, must file a tax return. INPS says so explicitly: the return is where the amount actually due is checked, adding all income together. The pre-filled return picks up the Certificazione Unica data.

In spring 2026 INPS updated the Certificazioni Uniche of people receiving income-support benefits, such as NASpI and wage guarantee payments, so that they could obtain these benefits through their return. Corrected CUs show code 1 in box 718 and the amount of the benefit in box 719.

To see which benefit applies, INPS points to the reference income in box 449 of the 2026 CU, which adds up the income received during the year. It is that total, not the benefit amount alone, that decides between the tax-free sum and the extra credit.

The supplementary payment and related items

The wedge cut should not be confused with the trattamento integrativo, a supplementary payment in place since July 2020. The section C instructions put it, for 2025, at 1,200 euros for employees with total income up to 15,000 euros, provided gross tax on employment exceeds the employment credits reduced by 75 euros scaled to the period worked.

That 75 euro reduction comes from the same law: paragraph 3 of law 207 inserted it into the supplementary payment test. Between 15,001 and 28,000 euros of income the payment is only due if further conditions are met, which the tax return recalculates. It too arrives on the payslip, paid by the employer from January.

The two measures are separate and the law does not present them as alternatives. INPS, in the notes to the updated CU, lists them together among the benefits a taxpayer can recover through the return if the withholding agent did not grant them or granted less.

This course read paragraphs 3, 4 and 6 in the original text of the law published in the Gazzetta Ufficiale, which sets no end year for the tax-free sum or the extra credit. Before any calculation for 2026, check on the payslip and the CU that the employer is applying them, since a later law may have amended them.

Checking the wedge cut on your payslip

On the payslip the tax-free sum usually appears as a line of its own among non-taxable earnings. The extra credit does not show up as money paid: it lowers the IRPEF withholding, together with the ordinary credit. Comparing payslips from before and after 2025 reveals it as smaller withholding.

At year end both amounts appear in the Certificazione Unica. The section on the sum not forming part of income reports what was granted; the credits section reports the extra credit. If the employer failed to apply the benefit, the employee recovers it by filing a return.

The final check is on total income. Anyone with rental income, a second job or an INPS benefit has to add them in, because they decide whether the benefit is due and how much. The employer does not know about them, which is why the tax return remains the place where the account is settled.