Fringe Benefits Garnishment: When is it Allowed?

The Unique Consolidated Law on Income Taxes (TUIR)

The Unique Consolidated Law on Income Taxes (TUIR), enacted by the Presidential Decree of December 22, 1986, No.
917, states in Article 51, paragraph 1, that the income from employment encompasses all amounts and values received in the tax period, including voluntary donations related to the employment relationship.

This article establishes the fundamental principle of “omnicomprehensiveness,” meaning that all sums and values are subject to Personal Income Tax (IRPEF) and the respective regional and municipal surcharges, even if provided by third parties rather than the employer, as long as they are linked to the employment relationship.

Understanding Fringe Benefits

In the context of taxable income, “sums” refer to monetary payments such as base salary, bonuses, allowances, etc., while “values” encompass non-cash compensations or fringe benefits.
Fringe benefits refer to the goods and services the employee receives during the tax period as per the employment contract.

Due to the variety of fringe benefits, lawmakers had to tackle the challenge of quantifying these benefits for tax purposes, thereby determining the value on which to apply tax rates for IRPEF and regional/municipal surcharges.

Fringe Benefits and Wage Garnishment

When discussing the taxation of fringe benefits, issues often arise concerning how to manage wage garnishments if multiple garnishments affect the net pay of an employee.

Wage garnishment is a legal process enabling creditors to seize a part of a debtor’s earnings to satisfy debts.
It often relates to personal debts for which an employee may face involuntary payroll deductions.

What is Wage Garnishment?

Under employment contracts, if an employee fails to repay a personal debt, creditors may enforce a wage garnishment through their employer.
This form of enforcement binds the debtor’s current and future income to satisfy the creditor’s claim.

The process involves notifying the employer, who is then obliged to withhold specified amounts from the employee’s net pay (credit) and transfer these to the creditor based on the set timelines established in the garnishment order.

Amount Subject to Garnishment

The amount garnished from an employee’s wages is subject to certain limitations depending on the type of debt:

• A maximum of 1/5 of the monthly net salary for ordinary debts;
• As determined by the judge in cases concerning alimony;
• A maximum of 1/5 for tax debts.

Non-Garnishable Income

Not all income is subject to garnishment.
While wage payments constitute a main focus, other income, like reimbursement for expenses, are excluded.

Are Fringe Benefits Garnishable?

According to Article 545 of the Civil Procedure Code, the economic value assigned to fringe benefits—indicating such benefits on the payslip—does not qualify as income deriving from labor performed, hence it is exempt from garnishment.