Taxation of TFR: How to Calculate Net Income and When it Applies

Tfr Taxation: Understanding the Calculation of Net Payment

One of the main concerns for employees is how the net amount is calculated starting from the gross Treatment of End of Service (Tfr).
The Tfr is a deferred compensation that employees receive once the employment relationship ends.
The taxation applied to the Tfr when it is paid is not the ordinary one, as it is a deferred payment that the worker earns and sets aside during the entire duration of the contract.

It wouldn’t be fair to apply the current Irpef tax rates to portions of remuneration set aside years before.
That’s why specific rules on taxation are provided by the legislation and in this guide we will see how to calculate it.

Complete Guide to Tfr Taxation

What is Tfr, the treatment of end of service
The Tfr, or treatment of end of service, is a deferred compensation that an employee accrues during the employment relationship and receives only upon termination of the same.
The Tfr amount is the sum of all allocations calculated on the payslip amount and annually adjusted according to the Istat consumer price index.

Differences between Tfr and Tfs in the public and private sectors
In addition to Tfr, there is Tfs – treatment of end of service – which is the amount paid upon termination of the employment relationship to public employees hired by December 31, 2000.
Different forms of Tfs include severance payments, service bonuses, and seniority indemnities.

When is the Tfr Paid and to Whom
The Tfr is paid to the employee when the employment relationship ends.
The employer must determine the gross Tfr amount to calculate the taxes to be paid and will then settle the net end-of-service treatment to the employee.

Anticipation of Tfr
In some cases, private sector employees can request an advance on their Tfr during the employment relationship.
The advance can only be requested once and is deducted from the final treatment of end of service.

Who is Entitled to Tfr
According to article 2120 of the Civil Code, the Tfr is granted to all employees under full-time or part-time, fixed-term or permanent contracts, in both the public and private sectors.

Calculating the Gross Tfr
The calculation of the gross Tfr is determined according to article 2120 of the Civil Code.
The gross amount is obtained by summing, for each year of service, a quota equal to the due remuneration divided by 13.5.

Taxation and Withholdings on Tfr
The taxation process on Tfr involves applying a separate tax rate based on the years in which the end-of-service treatment was accrued.

Calculating the Net Tfr
To calculate the net Tfr amount, the employer must determine the taxable base, the reference income, the average tax rate, and then calculate the income tax (Irpef).

Checking the Accrued Tfr
Employees can check the Tfr amount in each payslip, listing useful details such as monthly usable remuneration, accrued Tfr per month, and total Tfr accrued since the beginning of the employment relationship.

Tfr Accrued by December 31, 2000, and its Taxation
For the Tfr accrued by December 31, 2000, a specific calculation method applies.
The taxable base is calculated by deducting a fixed amount for each year of service from the total Tfr amount.