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When are fringe benefits granted to a worker (and not to everyone)?

Understanding In-Kind Compensation in Employment Contracts

Compensation granted to employees for their manual or intellectual work can go beyond monetary payments.
Employers may provide goods and services in addition to financial remuneration, a practice known as “in-kind compensation.” This type of compensation is distinct from the cash amount stated in payslips, which is considered “cash compensation.”

The Taxation of In-Kind Compensation

According to the principles established in Article 51, paragraph 1, of the Italian Consolidated Income Tax Act (TUIR), income from employment includes all sums and benefits received by an employee during the tax period.
In-kind compensations are also subject to taxation under this provision.

However, the TUIR provides exceptions to the general taxation rule for certain “low-value goods and services.” These exceptions, outlined in Article 51, paragraph 3, allow for a tax exemption on specific in-kind compensations.

Threshold and Tax Exemption for Low-Value Goods and Services

Under Article 51, paragraph 3, of the TUIR, goods and services provided by the employer with a total value not exceeding €258.23 per tax period are exempt from taxation.
If the value surpasses this threshold, the entire value is included in the taxable income.

However, as of the 2024 tax period, the threshold has been raised.
In 2024, the exemption applies to goods and services worth up to €1,000 for most employees and up to €2,000 for employees with dependents.

Special Considerations for 2024

In 2024, the threshold for tax-exempt in-kind compensations has increased.
This expansion benefits both employees and employers.
Notably, the enhanced threshold also applies to employees who do not claim child tax deductions but receive the Universal Child Benefit.

The increased thresholds also cover certain expenses paid by employers, such as utility bills, rent for the primary residence, and mortgage interest.
Employers must inform union representatives before implementing these benefits.

Tax Exemptions for Select Individuals

Employers have the flexibility to offer in-kind compensations to specific groups of employees, apart from a blanket distribution.
These specialized compensations, known as “fringe benefits,” are additional advantages provided to selected employees, distinct from regular cash payments.

The concept of fringe benefits extends to diverse scenarios based on job roles, professional skills, or contractual agreements.
It allows for tailored compensations within legal limits and specific taxation regulations.

Therefore, in compliance with the TUIR and related regulations, tax exemptions on fringe benefits apply even when granted to a subset of employees.
Employers are advised to document such arrangements in writing for transparency and compliance.

Author: Hermes A.I.

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