What is fiscal capacity? Calculation and what it is for

What is fiscal capacity and how is it calculated? A more than legitimate question, given that many benefits recognized to taxpayers materialize as tax deductions, or with a discount on the IRPEF due.
Tax capacity, if one wanted to give a concise definition, is nothing other than the taxpayer's ability to be able to recover the sums paid as taxes.
In fact, the tax capacity is the maximum Irpef discount that can be obtained based on the income earned and the resulting taxes paid.
Knowing how to quantify your tax capacity is important and above all indispensable in order not to lose the benefits due with deductions.
In this complete guide, therefore, we will analyze how to learn how to calculate your tax capacity to benefit from the maximum possible discount compared to the taxes paid (by way of refund) or due (by way of discount).
To simplify it even further, it could be said that the higher the earnings (and consequently the taxes that the taxpayer is required to pay) the higher his tax capacity, i.e.
the discounts or refunds due.
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The tax capacity, as we have already anticipated, for each person is determined by the Irpef that must be paid and, therefore, by the income produced in the previous tax year.
Currently, until 31 December 2023, there are four percentage tax rates on personal income, to be precise: 23% for incomes up to 15,000 euros; 25% for incomes between 15,000 and 28,000 euros; 35% for incomes between 28,000 and 50,000 euros; 43% for incomes above 50,000 euros.
These rates, however, will be in force until the end of the year and will only apply to the taxation of income produced up to 31 December 2023 (in the 2024 tax return).
From 1 January 2024, the 2024 Budget Law, implementing the provisions of the tax reform, provides for the consolidation of the first two income brackets under a single rate.
The percentage rates of Irpef taxation, therefore, from 2024 will be three, namely: 23% for incomes up to 28,000 euros; 35% for incomes between 28,000 and 50,000 euros; 43% for incomes above 50,000 euros.
What is the fiscal capacity for? What is the purpose of calculating fiscal capacity? This operation allows us to understand whether the taxpayer will have the right, when filing his tax return, to benefit entirely from the deductions to which he is entitled (the Irpef discounts which can be configured as lower taxes to be paid or, as in the case of employees who pay taxes month by month, as refunds on those paid).
The main problem in using deductions, in fact, is when you do not have enough fiscal capacity to be entitled to the entire discount due.
In fact, the deductions can be enjoyed "up to the tax capacity".
What does this mean? That the deductions due that go beyond the tax capacity are lost.
Let's give some examples.
If an employee paid 9,000 euros of Irpef during 2023 but also made expenses that entitle him to 4,000 in deductions, he will only be required to pay 5,000 euros of Irpef.
Having paid the taxes on the pay slip, month after month, the 4,000 euros of deductions will be returned to him as a refund in the 2024 tax return.
Let's suppose that the same employee, with 9,000 euros of Irpef still due, has incurred important medical expenses to which are also added deductions for renovation costs and any furniture bonus for a total of 11,000 euros, the maximum deduction due will be equal to the Irpef due, i.e.
9,000 euros and 2,000 euros of deductions are "lost".
The deduction, in fact, is nothing more than a subtraction of an expense from the tax.
When the tax goes to zero, however, it is no longer possible to subtract anything and the remaining deduction cannot be used.
Fiscal capacity: the no tax area After what has been said in the previous paragraphs, the concept of incapacity must also be clarified.
The tax legislation, in fact, provides, in addition to taxation, also automatic deductions (without having made any expenditure) for employed, self-employed or pension work.
As long as the tax due does not exceed the amount of the deductions due, the Irpef is not paid.
This is the so-called "no tax area", i.e.
the threshold within which no taxes must be paid (not because they are not due, but because they are canceled by the deductions due).
Currently the no tax area is different for the categories of income produced and specifically: it is 8,174 euros for employees; it is 8,500 euros for pensioners; it is 5,500 euros for self-employed workers.
Incapacity of flat-rate taxpayers It should be kept in mind, when talking about fiscal capacity, that taxpayers with a VAT number who have joined the flat-rate regime.
These are self-employed workers with revenues and compensation of up to 85,000 who choose, instead of the ordinary tax regime, a replacement rate by applying to the revenues achieved a profitability coefficient expected for the activity carried out for the determination of taxable income.
In the flat rate regime, therefore, taxation is reduced at 5% or 15% (after the first five years) but not on all the income received, but only on a part.
Precisely for this reason, in addition to the total deduction of mandatory social security contributions from taxable income, no deductions or deductions are foreseen in this tax regime.
The deductions provided, for example, for health expenses, those relating to children's education, funeral expenses or even deductions deriving from construction bonuses are always configured as deductions from the Irpef.
The flat-rate taxpayer does not pay Irpef, but a substitute tax for the ordinary one.
In fact, therefore, all flat-rate taxpayers (unless they also produce income subject to Irpef) are among the incompetent because they do not have fiscal capacity.
Calculation of fiscal capacity How do you approximately calculate your fiscal capacity? Given that it can only be determined once the taxable year has ended, to get an approximate idea of what your tax capacity could be, you can take the previous year's income statement as a reference.
If there have been no major changes in the income produced, roughly, year after year, the tax capacity remains similar.
It must be taken into account that if, for example, more overtime is worked in a year, this will have an (upward) impact on the tax capacity.
To determine the tax capacity just look at the gross tax due.
For those who present the tax return with form 730, this data can be consulted in the table relating to the "calculation of taxable income and gross tax" in line 16.
For those who use the Income Pf form, however, the data can be found in RN panel on line RN5.
Tax capacity, the amount of deductions must be added What must be considered, when talking about tax capacity, is that it must not be calculated for every single deduction due, but the amounts of deductions must be added and the tax capacity must be commensurate with the entire total amount of deductions due.
Let's take an example.
A taxpayer is entitled to deductions: 19% on 2,000 euros of medical expenses; at 19% on another 3.50 between children's education and university expenses, transport costs and sports expenses; 50% on 40,000 euros of property renovation costs; at 19% on the interest paid on the first home loan on an amount of 9,000 euros.
The total deductions due are equal to 2,755 euros for 19% deductions to which add 50% of the deduction for the renovation (equal to 20,000 euros) which is divided into 10 annual installments: 2,000 euros per year.
For the tax year in question he is entitled to 4,755 euros in deductions and to have tax capacity he only needs to have paid Irpef equal to or greater than 4,755 euros.