Bonuses in Italy: Productivity Flat Tax vs Ordinary Bonus

A bonus costs the employer the same amount whichever way it is paid. The difference is how much reaches the employee. In Italy, a bonus tied to productivity can be taxed at a flat rate instead of the ordinary progressive rates. This article compares the two routes from a cost and net pay point of view.

The two routes  

An ordinary bonus is paid as part of regular pay. It is added to the employee’s taxable income and taxed at the normal progressive income tax rates. The higher the employee’s total income, the more of the bonus goes to tax.

A productivity bonus is a payment linked to measurable results, such as output, quality, efficiency or profitability. If it meets the conditions, it can be taxed with a substitute tax at a flat rate of 1%. The rate applies up to a ceiling of 5,000 EUR of bonus. It is available only to employees whose income stays under a limit of 80,000 EUR.

Check the limit for 2026  

The 80,000 EUR income limit is the figure we found for 2025. We could not find a confirmation for 2026. The source for these numbers is a secondary one, not the tax authority itself. Before you build a bonus plan around the limit, confirm it for the current year. We do that check for clients as part of onboarding.

What this means for the employer  

The flat tax is an income tax measure for the employee. The gross amount you approve is the amount you budget. Moving a bonus from the ordinary route to the productivity route does not by itself lower your cost for the same gross sum.

What changes is the value of each euro you spend. The same gross bonus gives the employee a higher net amount. That is a stronger retention tool at no extra cost to you. You can also set a lower gross bonus and still deliver a net amount the employee finds attractive.

This note covers the income tax side only. Social contributions and any other charges on bonuses follow their own rules. Ask us to confirm them for your case before you commit to a plan.

What this means for the employee  

For an employee under the income limit, the flat rate is almost always better than the progressive rates. The effect is larger for employees with higher salaries, because their ordinary bonus would be taxed at the top of the progressive scale.

Employees above the income limit get no flat tax. Their bonus is taxed as ordinary income. If your senior staff are near the limit, the structure of their package matters. A bonus that looks generous in gross terms can be much smaller in net terms.

Cost and net comparison in practice  

Take the same gross bonus paid to the same employee in both ways.

• Employer cost: the same gross amount in both cases, before any contribution effects.
• Employee net, ordinary route: the gross bonus minus tax at the employee’s marginal progressive rate.
• Employee net, productivity route: the gross bonus minus tax at 1%, as long as the bonus is within the 5,000 EUR ceiling and the employee is under the income limit.

Any part of the bonus above the ceiling goes back to ordinary taxation. So a very large bonus mixes both treatments. When you design pay for a senior role, you can split the reward. Pay the part linked to measurable results under the productivity route, up to the ceiling. Pay the rest as ordinary pay.

What to put in place  

The flat tax is not automatic. The bonus has to be linked to real, measurable targets, and the plan has to be documented. A discretionary bonus with no defined criteria is a poor fit for the favourable treatment.

For a foreign company hiring in Italy, a practical setup looks like this:

• Define clear targets for the role, such as sales, delivery or quality indicators.
• Write the criteria down before the performance period starts.
• Check each employee against the income limit for the year.
• Track the amount paid under the flat tax so you stay within the ceiling.
• Pay anything above the ceiling, or above the limit, as ordinary pay.

Summary  

The employer cost of a bonus is the same on both routes. The employee’s net pay is not. A productivity bonus taxed at 1%, up to 5,000 EUR and for employees under 80,000 EUR, gives much more net value per euro spent than an ordinary bonus. Confirm the limit for the current year, since our source only gives it for 2025.

Find the country site for your market or request a quote to have your bonus plan set up correctly in Italy.