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Income tax for individuals

Irpef: rates and allowances

IRPEF is a personal tax that affects some types of income tax. In particular, the tax is applied on the following incomes:

  1. real estate income;
  2. capital gains;
  3. income from self-employment;
  4. income from employment;
  5. corporate income;
  6. other incomes.

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Rates and income brackets

Five income bands have been envisaged, each of which has a corresponding tax rate.

Table for calculating Irpef

Taxable Income Rate IRPEF (Gross)
up to 15,000 euros23%23% of income
more than 15,000 and up to 28,000 euros27%3,450 + 27% on the part exceeding 15,000 euros
more than 28,000 and up to 55,000 euros38%6,960 + 38% on the part exceeding 28,000 euros
more than 55,000 and up to 75,000 euros41%17,220 + 41% on the part exceeding 55,000 euros
more than 75,000 euros43%25,420 + 43% on the part exceeding 75,000 euros

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How the net tax is calculated

In order to establish the taxable income (the first column of the table) it is sufficient to subtract deductible costs (meaning all the sums indicated in article 10 of TUIR) and the allowance for the main residence (and its outbuildings) from the total income.

Once the taxable income for the purposes of Irpef has been established, the gross tax is calculated applying the new rates to this figure.

The effective Irpef charge (net tax) is determined by subtracting all recognized allowances (for dependent family members, for the type of income, for costs incurred, etc.) from the gross tax, until the completion of its amount.

The steps to follow to calculate the tax

Total income – deductible costs and first house allowances = taxable income x rates = gross IRPEF

Gross IRPEF – ALLOWANCES (For dependent family members, for type of income, for costs incurred, others) = NET IRPEF

Irpef is not owed by taxpayers whose total income is formed by:

  • pension incomes up to 7,500 euros (if received for the entire year);
  • income for land for an amount no higher than 185.92 euros;
  • revenue from real estate used as the main residence and its outbuildings;
  • rental, agricultural, and real estate incomes for a total value no higher than 500 euros.

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Exemption Area

Due to the different types of income, exemption from Irpef is determined at:

  • 8,000 euros, for subordinate workers, if their employment period coincides with the entire year;
  • 7,500 euros, for pensioners under 75 years of age, if the pension is cashed in for the entire year, and for those receiving palimony from ex spouses;
  • 7,750 euros, for pensioners aged 75 or older, with a pension period that coincides with the whole year;
  • 4,800 euros, no matter how many days they work a year, for taxpayers with other types of income.

Of course the area exempt from Irpef increases further if there are dependent family members.

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Allowances for type of income

The progressive nature of the mechanism for calculating Irpef is guaranteed, as well as by the rates and the income brackets, by a system of tax allowances that are different according to the type of income received (income from subordinate employment, pension, income from self-employment, company income, and so forth).

As for the allowances for dependent family members, those according to the type of income decrease as the income increases.

When calculating the effective amounts of tax, the parameter referred to is not the specific income category (for example the total of income from subordinate employment, the total of income from self-employment) but rather the total income.

Allowances for employees and pensioners need to be adjusted to the period of employment or of pension (expressed in days). The others are applied independently from the period a person has been employed throughout the year.

In case of more types of income, the value of the allowances cannot be accumulated and the taxpayer can choose the most convenient. People who, for example, have pension and company incomes, can reduce their gross tax only by one of the two different allowances.

Greater tax breaks have been provided in favour of pensioners older than 75 years and employees with a fixed term contract.

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Dependent family members: reductions from Irpef

Taxpayers with dependent family members benefit, instead of the previous income deductions, from tax allowance, according to the amounts established by article 12 of the TUIR.

Dependent family members are:

  • spouse, not legally and effectively separated;
  • children, including natural ones, recognized ones, adopted ones, and children given in custody and foster children;
  • other family members (only if they live with the taxpayer or receive palimony from him/her, or if they receive alimony from him/her which is not enforced by the judicial authority);
  • parents (even adoptive ones) – brothers and sistersdescendants of sons and daughtersseparated spouse, sons and daughters in-law, parents in-lawnext ascendants (even natural).

Tax allowances

Irpef reductions are provided for costs with a particular social relevance, such as those paid for health reasons, for interests on house mortgages, or for education.

Depending on the case, these reductions are obtained by submitting the income tax return and can be claimed in two different ways: the costs sustained can be “deducted” from the income produced or they can qualify as a right to a 19% tax allowance or to a flat rate allowance.

In order to be considered in the tax return, the expenses must have been sustained during the year for which this is submitted, even if the relative services date to the preceding years (“cash basis”).

In case of considerable amounts that fall between December and January (for example, real estate mortgages) it is advisable to pay by 31st December, in order to be able to apply the allowance in the following tax return (without having to delay it by one more year).

The costs must be, normally, sustained by the declaring party, in his/her interest.

For medical expenses, for costs relative to insurance and voluntary contributions, as well as for those paid to follow secondary or university education courses, the allowance is conceded even when the cost is sustained by dependent relatives.

When the cost is paid for sons or daughters, the allowance is awarded to the parent whose name the receipt is in. If this document is in the name of the son or daughter, the costs must be divided by 50/50 between the two parents. If the parents intend to divide the cost differently, they must record the new percentage agreed on the receipt.

Of course, if one of the two spouses is fiscally dependent on the other, the latter can always consider the entire cost sustained in order to calculate the allowance.

The allowance is normally recognized only for costs that have effectively remained an expense of the taxpayer.

In the case of refunds received from social security and public health authorities (for example refunds from the Health Services or from company support funds, which have not received payments adding to the employee’s income from the taxpayer or the employer) medical expenses cannot be considered to have “remained an expense of the taxpayer” and, therefore, the taxpayer has no right to the allowance.

On the other hand, the allowance is recognized for sums paid out by insurance companies, if the premium paid is not subject to tax cuts (for example, health insurances).

19% tax allowances

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Health costs

Health costs, of any type (doctor’s fees, general costs, specialist’s fees, surgery costs, pharmaceutical costs, etc) qualify for a 19% tax allowance once the allowance of 129.11 euros has been taken out. Taxpayers will then add all expenses incurred and deduct the allowance: the allowance owed is 19% of the resulting sum.

Of course, if the costs incurred during the year are not higher than the allowance, no allowance is owed.

The allowance is applied to the entire cost (without subtracting any sum) if this covers the means necessary to accompany, move and lift disabled people, and the purchase of technical equipment and software needed to help them live self-sufficiently and increase their integration.

In calculating medical costs that qualify for the 19% allowance, expenses covered by insurance companies following contracts agreed by the taxpayer or his/her employer may be included (the relative insurance premiums paid by employers are not deductible and cannot in fact be deducted by the taxpayer), as well as the part of expenses refunded due to health care subsidies that have contributed to form the income.

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Health costs for specific assistance and for particular types

The 19% allowance can also be claimed for health costs sustained for specific assistance provided by paramedic staff who hold a specialist professional qualification.

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Passive interests on mortgages for the purchase of real estate

Current norms on tax allowances for passive interests and accessory costs deriving from house mortgages are rather complex, as during the course of many years they have undergone a number of modifications, and consequently tax allowances are owed according to limits and processes that vary according to the type of real estate (main residence, second residence and other non residential buildings) and the year in which the mortgage contract was signed.

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Allowances in favour of disabled people

Costs sustained for the purchase of vehicles for disabled people give the right to a tax allowance of 19% of their total amount.

The following groups qualify for the allowance:

  • deaf-mutes and the blind;
  • disabled people with a psychic or mental handicap who hold a mobility allowance;
  • disabled subjects with a serious limitation to their mobility or affected by multiple amputations;
  • disabled people with reduced or hindered mobility.

It is worth remembering that it is also possible to benefit both from a subsidized VAT rate, 4% instead of 20%, for the purchase of cars (with up to 2000 cc, with a petrol engine, and up to 2800 cc, with a diesel engine, new or second hand), and an exemption from road tax and transfer of ownership taxes.

Furthermore, the 19% allowance can be entirely claimed for other expenses concerning vehicles needed for:

  • accompanying;
  • moving;
  • lifting disabled people, as recognized according to article 3 of law n. 104/92, whether they receive an accompanying subsidy or not.

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Allowances on voluntary payments

Voluntary payments to Onlus (not-for-profit organizations for social utility)

Taxpayers can deduct from Irpef 19% of the voluntary money donations made in favour of Onlus.

Onlus (not-for-profit organizations for social utility), a juridical body that appeared in the Italian system in 1998, are private entities with a vocation for social solidarity that operate exclusively with social aims.

The majority of these organizations must be registered in the designated regional registers, managed by the Regional Offices of the Inland Revenue, apart from the so-called Onlus by right, which are registered in the regional registers if they are voluntary organizations, in the Registers at the Prefecture in the case of social co-operatives, and in the list managed by the Foreign Ministry, in the case of Non Governmental Organizations.

All Onlus can benefit from exemptions and allowances for the most important taxes.

NOTE: As an alternative to the tax allowance mentioned above, the donations conceded to Onlus and associations for social development can be deducted from the total income

Voluntary payments to Social Development Associations

It is possible to claim tax allowance for an amount equal to 19% of voluntary cash payments, made in favour of social development associations registered in the lists provided for by law 383/2000.

Voluntary payments in favour of humanitarian, religious or lay initiatives

It is possible to claim tax allowance for an amount equal to 19% of voluntary cash payments, made in favour of humanitarian, religious or lay initiatives managed by foundations, associations, committees and entities recognized by D.P.C.M 20/06/2000 in non OECD member countries.

Voluntary payments in the entertainment sector

It is possible to claim tax allowance for an amount equal to 19% of voluntary cash payments, in favour of entities or public institutions, foundations and legally recognized associations that carry out not-for-profit activities exclusively in the entertainment sector, aimed at building new structures, refurbishing and improving existing ones, as well as productions in all sectors of entertainment.

Voluntary payments in favour of schools

Voluntary payments made in favour of schools of any type or grade, state or private, made with no intention of profit and aimed at technological innovation, improving the institute’s building and achieving a wider offer of courses, qualify for a tax allowance of 19% of their amount.

The schools must be a part of the national education system, as defined by law n. 62 of 10th March 2000 and subsequent modifications.

The allowance can be claimed as long as such payments are made through bank or post office account transfer, as well as by credit card, pre-paid cards and cheques.

Contributions to mutual aid societies

It is possible to claim a tax allowance of 19% of membership fees, paid through a bank or a post office by members to mutual aid companies that operate exclusively in the sectors defined in article 1 of law n. 3818/1886.

Voluntary payments for activities with an important cultural or artistic value

It is possible to claim a tax allowance of 19% of voluntary money donations made in favour of the State, the Regions, local territorial authorities, public entities or institutions, organizing committees specifically created by decree of the Ministry of culture and the environment, of foundations and associations legally recognized as not-for-profit, which provide or promote studies, research and documentation of a relevant artistic and cultural value or which organize and provide cultural activities, on the basis of a specific agreement, for the purchase, maintenance, protection or the restoration of the things identified according to Legislative Decree n. 42/2004 and DPR n. 1409/63.

Political parties and movements

It is possible to claim a tax allowance of 19% of voluntary cash donations made to political parties and movements.

Individual associates cannot claim the allowance for donations made by their companies.

The tax allowance can also be claimed by corporate enterprises and commercial institutions that can deduct 19% of their donations to political parties and movements from their gross tax, as long as it is within the same limits prescribed in the previous period.

The donation must be made by post or bank transfer in favour of one or more movements or parties; these can collect the donations both through a single national current account and through a number of peripheral current accounts. Sums received as payment for party membership are not recognized as cash donations qualifying for tax allowance.

Cultural society La Biennale di Venezia

It is possible to claim a tax allowance of 19% of cash donations made in favour of the cultural society La Biennaledi Venezia.

Amateur sport societies and associations

It is possible to deduct 19% from Irpef of cash donations made in favour of amateur sport associations.

Calamities and other extraordinary events (Donations in favour of affected populations)

It is possible to claim a tax allowance of 19% for cash donations in favour of people affected by public calamities or other extraordinary events, even if they take place in other countries. The donations can be made through Onlus, as well as through:

  • international organizations of which Italy is a member;
  • other foundations, associations, committees and authorities, founded with a certificate or statute of incorporation compiled in the form of a public act or of an authenticated or registered private document, the aims of which include humanitarian interventions in favour of populations affected by public calamities or other extraordinary events;
  • national, regional and local public administrations, non-economic public authorities;
  • trade unions.

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Other expenses

Insurance premiums

Taxpayers may deduct 19% from Irpef of insurance premiums paid on life insurance and accident insurance if the insurance contract covers the risk of death or 5% minimum permanent injury, or the lack of self-sufficiency in everyday tasks.

In this case the option of withdrawing from the contract must never be available to the insurance company. In the case of so-called mixed contracts, only the part of the premium covering the aforementioned risks is deductible.

Education costs

Costs incurred to follow secondary, university and career development courses, provided by Italian or foreign institutes or universities, public or private, qualify for the 19% Irpef allowance. Allowances are admitted for enrolment in additional years.

As far as payments for enrolment into foreign institutes or universities, public or private, as well as private Italian universities, the maximum amount considered when calculating the allowance cannot be higher than the sum established for fees paid to Italian state institutes.

Nursery school fees

It is established a tax allowance for fees paid by parents to send children – aged between three months and three years old – to nursery school.

The tax allowance can be claimed for fees paid for each child, to attend both state and private nursery schools.

The allowance respects the cash principle, and is applicable for costs incurred during the tax period, no matter what school year they refer to.

Documentation for the cost can be provided by means of a receipt, a bank or postal slip, and is to be divided between the parents according to the costs sustained by each. When the documentation is in the name of the child or only one of the two spouses, it is possible to indicate what percentage of the cost each party is accountable for on the same document.

Veterinary fees

Taxpayers are entitled to an Irpef allowance for 19% of veterinary fees; the allowance can be claimed for medical expenses paid for animals legally kept as pets or to practice sports (therefore dogs, cats, caged birds and racing horses).

On the other hand, the allowance cannot be claimed for livestock, whether it is kept for breeding or personal consumption; for animals bred or kept for the purposes of agricultural or commercial activities; for those used for illicit activities and those kept illegally as pets.

Tax cuts for real estate agent fees

It is possible to claim an Irpef allowance for 19% of the costs incurred for fees paid to estate agents when buying a main residence.

Annual enrolment to sports facilities

It is possible to claim a tax allowance for the costs of registration and annual membership of sports associations, gyms, swimming pools and other sporting structures and facilities for the practice of amateur sports.

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Other allowances

Donations to the Galliera Hospital

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Allowances for tenancy contracts

Tax allowance for low income tenants

It is established an allowance for taxpayers who pay a rent for their main residence.

In particular, subjects with a tenancy contract for real estate used as a main residence, signed or renewed according to the principles set forth by law n. 431 of 9th December 1998, are eligible for a total tax allowance.

Allowance for young tenants

There is a tax allowance for young persons aged between 20 and 30 who sign a tenancy contract according to the principles set forth by law n. 431 of 9th December 1998, for real estate used as their main residence, if this is different from their parents’ or their foster parents’ main residence.

Tax allowances for lease contracts with controlled fees

Taxpayers who hold a lease contract, signed on the basis of special agreements defined locally between the real estate property organizations and the most representative national tenants’ organizations (so-called controlled contracts, according to law n. 431 of 31st December 1998) can claim a tax allowance. In no case can the allowance be claimed for lease contracts between public authorities and private parties (for example taxpayers who hold a lease contract signed with council house organizations cannot benefit from the allowance).

If the total income is higher than this last sum, no allowance can be claimed.

Allowance for work related transfer

Employees who have signed a tenancy contract are eligible for an allowance under the following conditions:

  1. they have changed their residence to the municipality where they work, or to a neighbouring one;
  2. the new municipality is at least 100 kilometres from the previous one and anyhow outside the taxpayer’s region;
  3. residence was changed to the new municipality no longer than three years before the request for the allowance;
  4. the allowance can be claimed within the first three years in which residence has been changed.

This allowance cannot be claimed for incomes assimilated to an employee income (e.g. scholarships),

NOTE: The different allowances that tenants can claim must be proportionate to the period of the year in which the required conditions are met and cannot be accumulated.

Leasing contracts for university students

Another leasing contract that benefits from tax allowances is the one signed by students enrolled on a degree course at a university in a municipality different from their municipality of residence.

The leased properties must be in the same municipality as the university or in neighbouring municipalities. They must furthermore be at least 100 Km from the students’ municipality of residence and anyhow be in a different province.

The leasing contracts must be signed or renewed according to the principles set forth in law n. 431 of 9th December 1998.The allowance also include the payments regarding hospitality contracts, as well as deeds awarding the free use of the property or the lease thereof, agreed with entities promoting the right to study, universities, legally recognized university colleges, not-for-profit organizations and co-operatives.

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Tax allowances for refurbishment expenses

It is possible to benefit from a tax allowance for refurbishment works on real estate property for a value of 36% of the costs incurred.

For expenditure incurred from 26 June 2012 to 30 June 2013, it is possible a tax deduction of 50% on a maximum spending limit of 96,000 € per real estate unit.

The list of works that qualify for the tax allowances can be found in article 3 of the TUIR on legislative dispositions and regulations in the subject of construction, approved with D.P.R n. 380 of 6th June 2001, (previously listed in article 31, letters a), b), c) and d) of law n. 457 of 5th August 1978).

In particular, the Irpef allowance covers expenses incurred in order to perform extraordinary maintenance interventions, refurbishment and restructuring works for single apartments and apartment buildings.

Ordinary maintenance interventions qualify for the Irpef allowances only if they concern the common areas of residential buildings.

Amongst the costs that qualify for the allowance, the following are also included:

  • interventions aimed at improving wheelchair access, through the installation of lifts and hydraulic platforms (for example the construction of an external lift);
  • the construction of any means that, through communication, robotics and any other advanced means of technology, is suitable to improve the mobility, both within and outside the building, of the seriously disabled, as defined by article 3, paragraph 3 of law n. 104 of 5th February 1992;
  • adoption of measures to prevent the risk of third parties performing illicit acts;
  • interventions aimed at avoiding domestic injuries;

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Irpef allowances for energy efficiency improvements to buildings

It is established an allowance for taxpayers who pay to improve the energy efficiency of existing buildings.

The allowances are essentially the following:

  • an allowance from the gross tax of 55% of costs, effectively incurred by the taxpayer, sustained for energy efficiency improvements to existing buildings, which reduce the yearly primary energy consumption for winter heating by at least 20% of the values recorded on a special chart.

From 1 July 2013 these allowance will be replaced with the income tax deduction of 36%, already provided for the costs of building refurbishment.

The allowances are awarded under the condition that the intervention conforms to the standards prescribed and is certified by a qualified technician, who is held responsible by law.

Furthermore, the payment must be done through bank or postal transfer. In order to claim the allowance, taxpayers must also acquire the building’s energy certificate, if this has been introduced by the region or local authority, or, otherwise, an “energy efficiency certificate” prepared by a certified professional.

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Costs that can be deducted from income

Deductible costs

Deductible costs are those costs that can be subtracted from the total income when the tax return is submitted, generating a tax allowance that is equal to the maximum rate reached by the taxpayer. The main deductible costs include compulsory and voluntary national insurance contributions, complementary welfare contributions as well as premiums and contributions made to individual pension schemes, generic medical expenses and fees for specialist assistance to disabled people.

In order to be considered in the tax return, the costs must be sustained during the year for which it is submitted, even if the relative services have been provided in previous years (cash basis).

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Contributions

National insurance contributions

National insurance contributions that are compulsory by law qualify for full deductibility.

As of 2001, this has also been recognized for contributions paid voluntarily to the compulsory pension scheme to which a taxpayer belongs.

These are contributions paid for university loan redemptions, to cover missing insurance periods, as well as contributions paid to the fund defined by Legislative Decree n. 565 of 16th September 1996, for example by housewives.

Furthermore, voluntary contributions qualify for allowance even if a taxpayer has paid them in the name of dependent relatives.

CONTRIBUTIONS FOR ADDITIONAL INSURANCE

Contributions paid for collective complementary insurance services (closed and open funds) and for private insurance (life insurance contracts regulated by article 9 ter of Legislative Decree n. 124 of 1993), including those signed in EU member states and in the countries adhering to the European Economic Area Agreement, qualify for an allowance from the total income declared for the purposes of Irpef.

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Contribution costs for household staff and carers

It is possible to deduct welfare contributions, paid for household staff and personal or family carers, from the total income for the amount paid by employers.

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Voluntary donations

In favour of not-for-profit organizations

Individuals and entities that are subject to company income tax (in particular companies, commercial and non-commercial entities), can deduct from their total declared income all donations in money or in kind made to the following subjects:

  • Onlus;
  • Social development associations registered in the appropriate national register;
  • Recognized foundations and associations whose statute includes the protection, promotion and development of property of artistic, historic and scenic value;
  • recognized foundations and associations whose statutory objectives are the development and promotion of scientific research activities, as defined by Decree of the Prime Minister of 8th May 2007, if carried out after this date.

To NGOs for developing countries

As non-governmental organizations (so-called NGOs) that co-operate with developing countries are included by right in the same category as ONLUS, it is possible to benefit from the allowance for a maximum amount of 10% of total declared income, and anyhow for a maximum sum of 70,000 euros (see paragraph above “contributions in favour of not-for-profit organizations”).

The list of NGOs recognized by the Foreign Ministry, General Directorate for Co-operation and Development, is available on the Foreign Ministry’s website (www.cooperazioneallosviluppo.esteri.it).

To religious institutions

Voluntary donations to religious institutions can be deducted from the total income.

Taxpayers involved need to keep the receipts for the payments made into post or bank current accounts and final discharge receipts.

In particular, voluntary cash donations in favour of the following institutions qualify for allowance:

  • the Italian Evangelical Lutheran Church and its Community, for the support of the church’s ministers and for specific worship and evangelisation needs;
  • the Waldensian Church, Union of Methodist and Waldensian Churches, to promote worship, education and all charitable aims that characterize the church, and for the aims of the churches and authorities that are part of the Waldensian order;
  • the Moral authority Assemblee di Dio in Italia, for the support of the church’s ministers, to promote worship, the care of souls and the administration of the church;
  • the Central institute for the support of the clergy of the Italian Catholic Church;
  • the Italian Union of Christian Seventh-day Adventist Churches, for the support of the church’s ministers and missionaries and for specific worship and evangelisation needs;
  • the Italian Union of Jewish Communities, as well as yearly contributions to Jewish communities;
  • the Italian Evangelical Christian Baptist union, to promote worship, education and all charitable aims that characterize the church, and for the aims of the churches and authorities that are part of the Union;

To universities and research centres

Individuals can deduct from their total declared income, voluntary donations made in favour of universities, university foundations referred to in article 59 of law n. 388/2000, public university institutions, public research centres, as well as research centres monitored by the Ministry of Education, University and Research, including the ISS, the ISPESL as well as national and regional park authorities.

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Other deductible costs

Periodic allowances paid to spouses

Periodic allowances paid to spouses following legal and effective separation, or dissolution or annulment of the marriage, or end of the civil effect thereof, can be deducted.

Payments for child support cannot be deducted.

When the decision of the judiciary authority does not state which part of the periodic allowance is for child support and which is for the spouse, this is considered to be half the total amount. Payments made to a spouse in a single solution following separation cannot be deducted.

Health costs and means of support for disabled people

Generic medical expenses (e.g. GP services, purchase of medicines) and those incurred for specific assistance sustained by disabled persons are entirely deductible from the total income. Services provided by paramedics who hold a professional specialization (e.g. professional nurses or personnel qualified to perform specialized health procedures, such as taking samples for analysis and procedures involving electro-medical equipment) qualify as specialized assistance.

Costs sustained for services provided by personnel qualified as basic carers or technical carers, under the condition that they are exclusively provided for the direct support of the person, costs sustained for services provided by personnel co-ordinating core assistance services, by personnel qualified as professional educators, by qualified personnel in charge of social activities and occupational therapy, also qualify for a full allowance from total income.

NOTE: Furthermore, these costs also qualify for allowance from the total income even if they are sustained by relatives of disabled persons who are not fiscally dependent on them.

Costs incurred by adoptive parents

Costs incurred by adoptive parents of foreign minors qualify for a 50% allowance. They must, however, be documented in full by the competent authority that is responsible for following the adoption process.

The register of recognized authorities has been approved by the Commission for international adoptions of the Prime Minister, and can be consulted on line at www.commissioneadozioni.it.

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