The Performance Bonus regime for the two-year period 2026-2027

The 2026 Budget Law (Law no. 199/2025, art. 1, paragraphs 8-9) significantly strengthened the facilitated regime of performance bonuses by reducing the tax burden and raising the maximum tax limit, without, however, changing the structure introduced by the 2016 Stability Law (Law no. 208/2015, art. 1, paragraphs 182-191). Therefore, the prerequisites, access conditions and application methods already in force remain unchanged.[1]

In practical terms, the changes made are as follows:

• the rate of the substitute tax for personal income tax has been reduced from 5% to 1%;
• The maximum allowable limit has been raised from 3,000 to 5,000 euros gross per year per worker.

The new measures apply for the two-year period 2026-2027.

Admission requirements

  a) Recipients and (subjective) income limits

Employees in the private sector who, in the year prior to the payment of the bonus, have received an employment income[2]  not exceeding 80,000 euros,  can benefit from the 1% benefit  

The income limit must be calculated by including the sums already subject to substitute tax, pensions, the portion of severance pay paid in the paycheck. On the other hand, employment income subject to separate taxation is excluded.

In the event that the withholding agent who pays the bonus does not coincide with that of the previous year, it is necessary to acquire appropriate documentation (Single Certification or self-declaration of the worker) to verify compliance with the limit.

  b) The Principle of Incrementality (objective)

Performance bonuses benefit from the preferential tax regime provided that their payment is linked to incremental results compared to a reference period, measurable and verifiable according to objective criteria defined in the collective agreement. 

Increments can be in the following areas:

• Productivity: output per employee, reduction of cycle times, savings in production factors, reduction of absenteeism rates.
• Profitability: operating margin, EBITDA, operating result of units.
• Quality: reduction of waste, non-conformities, customer complaints.
• Efficiency: use of plants, reduction of operating costs, improvement of turnover rates.
• Innovation: number of completed projects, new product lines, digitalization of processes.

The company or territorial contract must define ex ante the indicators and the reference period, providing for comparable parameters (e.g. comparison with the previous year or with the contractual baseline) and non-discretionary and verifiable measurement criteria.

It is not sufficient to generically qualify a salary item as a “bonus”: the agreement formulated in generic terms or based on objectives that are not really incremental exposes to the disavowal of the benefit and the recovery of taxes with penalties.

In addition, the preferential tax regime does not apply to the so-called productivity remuneration. Consequently, individual salary items such as, by way of example, salary increases or overtime cannot benefit from the application of the substitute tax.

Advantages of the facilitation instrument

The detaxation of performance bonuses is a useful tool for all those involved as it reduces the tax wedge[3], increases the net payroll of the worker, makes the salary offer more attractive for the same gross cost and allows the employer to link part of the cost to performance objectives.

As far as the worker is concerned, the new measures allow substantial savings both compared to ordinary taxation and to the previous rates of substitute tax. To give an example, with the substitute tax at 1%, against a gross premium of 3,000 euros, the tax levy is only 30 euros. With the previous rate of 5% it was 150 euros; with ordinary IRPEF taxation, assuming an average rate of 30% plus surcharges, it would exceed 1,000 euros.

The possibility of converting the bonus into welfare goods and services remains unchanged (provided that it is expressly provided for by second-level bargaining). The conversion into welfare guarantees full tax and contribution exemption on the portion of the converted premium, attributing in itself a greater tax benefit than the performance bonus regime.

With the rate of 1%, the economic comparison between cash bonus and welfare (unbalanced in favor of corporate welfare, with the previous rates of substitute tax) has been rebalanced: the advantage of welfare remains mainly on the contributory side and for fully exempt benefits. The choice between the two options must now be evaluated on a case-by-case basis, taking into account the structure of the bonus, the needs of the worker and the welfare items provided for in the agreement.

The advantage of performance bonuses does not end with the tax benefit.

In fact, the HR literature and studies on organizational well-being document that incentive systems linked to clear, shared and measurable objectives produce significant positive effects on the entire organization. Among them in particular are the following:

• Motivation and engagement: the link between performance and economic recognition, when perceived as fair and transparent, increases the propensity for continuous improvement and reduces work disaffection.
• Collaborative culture: awards linked to the results of teams or production units strengthen the sense of belonging and cooperation between colleagues, more than individual targets alone do.
• Talent retention: the combination of economic recognition and symbolic recognition (communication of results, visibility of teams) is more effective than just a fixed salary increase in retaining key resources.
• Employer branding: a structured and stable incentive system over time strengthens trust between management and workers and improves the perception of the company on the labor market.

Operational requirements

Access to the facilitated regime requires compliance with a precise contractual and documentary process. The main steps are as follows:

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Do not hesitate to contact us for any further information.

Sincerely,

Beatrice Pallante

This Newsletter is the result of a collaboration between artificial intelligence and human expertise, with revision and editorial care by Beatrice Pallante

[1]At the date of drafting of this newsletter, the Revenue Agency has not published a specific resolution on this matter. Consequently, the interpretative principles remain those of the previous newsetters.

[2] That is, employees of commercial companies, entities that do not carry out commercial activities, publicly owned companies and arts and professions.

[3] The facilitation, on the other hand, does not affect the contribution charges, which remain due in the ordinary measures on the amount of the premium paid.