The withholding tax is a tax advance that the employer applies to the collaborator.
This is a withholding from the compensation due to the supplier and is valid as an advance on the taxes that the latter will have to pay.
In practice, a part of the compensation is not paid to the collaborator but directly to the State as an advance on the IRPEF to be paid in relation to that income by the collaborator himself.
But what is withholding tax and how does it work? What's new in 2024 in this regard? Let's discover together all the rules for calculating it, the regimes in which it applies and the payment times.
Withholding tax: how it works, who pays it and when to apply it What is withholding tax and who pays it How withholding tax works and when it is applied Withholding tax for occasional services: rules and limits Withholding tax withholding tax: rates and percentage How to calculate withholding tax: an easy example When is withholding tax paid When and to whom is occasional collaboration with withholding tax Occasional collaboration with withholding tax or VAT number suitable? What is withholding tax and who pays it Withholding tax is a tax practice by which an individual, usually an employer or a client, withholds in advance a percentage of the amount due to the recipient of the payment.
This withholding tax is then paid by the same client directly to the Revenue Agency as an advance on the taxes that the beneficiary will subsequently have to settle when filing his tax return.
The withholding tax is applied to various types of payments, such as compensation for self-employment or professional services, with different limits and rates depending on the many legal-commercial situations.
This withholding tax system finds its fundamental regulatory reference in article 64 paragraph 1 of Presidential Decree 600/1973.
The taxpayer who is obliged to pay the withholding tax is defined by tax legislation as a "withholding agent", i.e.: "one who, by virtue of legal provisions, is obliged to pay taxes in place of others, for facts or situations referable to them and also as an advance payment.
He must exercise recourse unless otherwise expressly established." The advantage of the withholding tax system for the financial administration is the guarantee of safe and complete tax collection.
In these cases, in fact, tax evasion is avoided by anticipating the moment in which the taxable person suffers the tax levy (as an advance payment or final tax).
We can therefore say that the withholding tax is the instrument by which the so-called tax substitution can take place.
How withholding tax works and when it is applied Very simply, with this tool the collaborator carries out work for the client as if he were a professional (despite not having a VAT number), for a limited period of time and compensation.
The nature of the relationship must be "occasional" and there is no nature of subordination in the working relationship.
From a practical point of view, when paying for the service, the collaborator must produce a receipt to the client who will pay it.
It is often the client who provides a receipt model which the collaborator signs and delivers: this is a reversal of roles due only to the fact that the collaborator often does not actually know how to produce the receipt, but formally it is the collaborator who delivers the receipt to the client as if it were an invoice.
From a fiscal point of view, the receipt will contain: the date and number of the receipt; the collaborator's data (including tax code); the customer's data (including tax code and VAT number); the description of the activity performed; the amount of gross compensation; the amount of withholding tax; the net amount (gross – withholding tax).
To get a clearer idea, see the Sample online or download it in PDF: Once the receipt has been delivered to the client, he proceeds to: pay the net amount to the collaborator (preferably with a traceable form, e.g.
bank transfer) ; pay the amount of withholding tax to the State on behalf of the collaborator by the 16th of the month following the date of payment.
From 2024, it is possible to postpone payment if the total withholdings made in the month do not exceed 100 euros in amount.
Therefore: the client's total expenditure is equal to the gross; the employee's income is net; the State immediately takes 20% of the collaborator's taxes through the client.
At the time of the tax return, the following year, depending on the total income and any deductions and deductions, the State may: in the event that it is not due, return to the collaborator part or the entire percentage paid (in the form of tax credit); in the event that the taxes due exceed the 20% already paid, ask for an adjustment.
Remunerations with a value lower than 25.82 euros, paid by public or private bodies, which do not have the exclusive or main purpose of carrying out commercial activities, for occasional self-employed work are not subject to withholding tax.
read also Withholding tax, if not paid, is the responsibility of the withholding agent.
Withholding tax for occasional services: rules and limits.
The term «withholding tax» has now entered common jargon as a synonym for «occasional collaboration », a form of working collaboration that is always very widespread; especially for those categories for which working means collaborating with multiple subjects during the year, for small tasks limited in time and commitment required, often linked to specific tasks and objectives.
In these cases, employers often offer collaborators without a VAT number (for collaborations that do not exceed €5,000 in gross compensation in the year) the formula of occasional collaboration, commonly called collaboration with withholding tax.
It is important to clarify that in many cases it can be useful to open a VAT number even if you are not sure of reaching €5,000 in annual income; this is especially valid if you are entering the world of work and want to start a process of increasing the number of customers and collaborations over time: the VAT number can be more fiscally advantageous and help negotiate conditions and rates with greater negotiating leverage given by the greater professionalism with which we present ourselves on the market.
Withholding tax: rates and percentage As we have mentioned, the rates considered are 20% or, in some cases, 30%.
In particular, the 30% rate applies to compensation for non-residents for the economic use of intellectual works, industrial inventions, patents and similar.
If the aforementioned fees are paid to permanent organizations in Italy of non-residents, a withholding tax of 20% is applied as an advance payment.
The taxable base is the first step to calculate the right percentage of withholding tax, as well as for what concerns net and gross compensation.
The tax base includes: professional fees; reimbursements at the bottom of the list (actually incurred) for travel, food and accommodation expenses; documented expenses advanced by the professional and reimbursed by the client.
The following do not contribute to the taxable base: social security contributions required by law to be paid by the person who pays them; possible charge for reimbursement of the contribution to the national fund of the professional association; compensation received as reimbursement of advance expenses, in the name and on behalf of the customer, provided that they do not represent expenses inherent to the production of self-employment income and that they are analytically documented.
In summary: Type of income Rate Tax base Tax code F24 Compensation for self-employment by arts and professions operators 20% 100% 1040 Compensation for occasional self-employment 20% 100% 1040 Compensation for condominium administrator services 20% 100% 1040 Compensation for the assumption of obligations to do, not to do and allow 20% 100% 1040 Compensation to the author or inventor for the assignment of copyright and rights for intellectual works 20% 75% 1040 Compensation to the author or inventor for the assignment of copyrights and rights for intellectual works (under 35 years of age) 20% 60% 1040 Profits deriving from joint venture with contribution of labor only 20% 100% 1040 Indemnity for the termination of agency relationships of natural persons and partnerships 20% 100% 1040 Participation in profits of founding members or promoters 20% 100% 1040 Compensation for self-employed work, even occasional (non-residents) 30% 100% 1040 Compensation for the use or concession of use of industrial, commercial or scientific equipment located in the territory of the State (non-residents) 30% 100% 1040 Compensation for the use of intellectual works, industrial patents and trademarks company, processes, formulas and information relating to experiences acquired in the industrial, commercial or scientific field (non-residents) 30% 100% 1040 Commissions for commission, agency, mediation, commercial representation and business procurement relationships 23% 50% 1040 Commissions for commission, agency, mediation, commercial representation and business procurement relationships (with the continuous help of staff) 23% 20% 1040 Home sales agents 23% 78% 1040 Fees due from the condominium to contractor subject to IRPEF 4% 100% 1019 Fees owed by the condominium to the contractor subject to IRES 4% 100% 1020 read also Receipt for occasional service: instructions and sample How the withholding tax is calculated: an easy example It is not difficult to calculate withholding tax.
Once the taxable percentage has been defined, depending on the type of compensation, and the reference rate, the calculation of the amount is mechanical.
For example, let's consider a payment of 1000 euros subject to a withholding tax at a rate of 20%.
In this case, the taxable amount – if there are no reimbursements and documented expenses – which represents the total amount subject to taxation, is 1000 euros.
For our example, we do not take into consideration the assignment of copyright, which provides a tax base of less than 100% – as per the explanatory table.
The withholding tax is calculated by applying the rate to the taxable amount.
In our example, the calculation would be as follows: Taxable amount: 1000 euros Rate: 20% Withholding tax = Taxable amount x Rate = 1000 euros x 0.20 = 200 euros So, in the total payment of 1000 euros, the beneficiary will actually receive 800 euros, since the remaining 200 euros are withheld as withholding tax.
This withheld amount is subsequently paid to the Revenue Agency by the client, according to the dynamics defined previously.
VAT must be added to our calculation, if present, which however does not affect the calculation.
However, for self-employed workers registered with separate management, the INPS compensation contribution (4%) is subject to withholding.
When paying the withholding tax The withholding agent (employer) must pay the withholding tax by the 16th of the month following payment through Form F24, only electronically for employers with a VAT number (tax code 1040).
As announced, starting from January 2024 there is the possibility of delaying payment if the sum of the amounts relating to withholding taxes in the reference month does not exceed 100 euros.
Obviously, this possibility does not concern withholdings applied in the month of December; in this case, the payment must still be made by the 16th of the following January.
The withholding tax paid must be certified by the subjects who made it.
The certification must be delivered by March 31 of the year following the year in which the sums were paid and must indicate: the total amount of the sums paid; the amount of withholdings and tax deductions made, as well as social security and welfare contributions; any other non-mandatory information (for example VAT).
read also Self-employed withholding tax greater than 20%: can it be done? When and for whom occasional collaboration with withholding tax is convenient.
Among many collaborators who work with this formula there is a false myth that the withholding tax is convenient for the employer/client.
In reality, for the client the convenience is equal to that which it would have if the collaborator had a VAT number, having to carry out the additional burden of paying and managing the bureaucracy linked to withholding taxes.
The fact that occasional collaboration with withholding tax is not particularly advantageous for the employer does not mean that it is advantageous for the collaborator, except in not being subject to INPS.
In fact, with occasional collaboration, no social security contributions are paid (neither by the employer nor by the collaborator).
Occasional collaboration with withholding tax or VAT number? By having a VAT number, for example with the flat-rate regime, the collaborator can: benefit from a very advantageous IRPEF rate and a flat-rate deduction from taxable income; pay only the taxes due (if due) the following year when filing your tax return.
The net income of the professional with a VAT number will be subject to the contribution obligation which, if on the one hand involves an additional cost (largely offset by the low IRPEF cost of the scheme), on the other means accumulating contributions in view of a future pension.
Working in an occasional collaboration with withholding tax is only convenient when: you have only one short collaboration with an individual; the nature of the collaboration is truly extemporaneous; it is not expected to be able to obtain other collaborations in the medium term with the same client or with other clients in the same sector.
For tax withholding agents (employers), the certification of compensation paid to self-employed workers must be attached to the Tax Withholding Agent Form 770.
This rule does not apply to VAT holders in the flat-rate regime, as this particular category of self-employed workers is not a tax substitute (unlike what is provided for minimum taxpayers who, although not having to apply the withholding tax as withholding tax, are tax substitutes).
For further information, see also the guide on accessory work on the Ministry of Labor website.
The withholding tax is a tax advance that the employer applies to the collaborator.