Right on schedule at the end of August, as happens every year, work has restarted on Italy’s year-end budget. At the center of the assumptions circulating around the 2027 Budget Law is taxation, with several hypotheses for cutting taxes. The first is not entirely new and concerns extending the second Irpef bracket — Irpef is Italy’s personal income tax — at 33% to incomes up to 60,000 euros (about $64,800), but the government is also weighing the possibility of lowering the first bracket from 23% to 22%.

Also under study is a tax break on the tredicesima, the thirteenth-month salary that Italian employees receive in December: it could be exempted entirely or taxed through a flat rate. The government is also considering making permanent the tax relief on pay increases granted through collective bargaining renewals.

On the same fiscal front, Rome is looking at a VAT cut from 10% to 5% on residential leases granted by companies to tenants under 36, and — again with young buyers in mind — at a flat registration tax on first-home purchases, where the levy currently stands at 2%.

As every year, then, taxation plays a central role in the year-end budget. This year in particular, since this is the final budget of the current government: while the Budget Law has to keep the public accounts in order, it also has to keep one eye on the 2027 election.

A tax cut aimed at the middle class

Widening the second Irpef bracket up to 60,000 euros ($64,800) is a scenario that was already considered last year. The extension would produce a 10% reduction in the Irpef owed on incomes between 50,000 and 60,000 euros (roughly $54,000 to $64,800). It is a measure the government had promised to deliver before the end of the legislature and which, for lack of budget coverage, has not been feasible so far.

The measure, which would benefit only the middle class, would deliver a maximum tax saving of 1,000 euros a year for every taxpayer earning from 60,000 euros upward. For those below that level the saving would be smaller: someone earning 55,000 euros (about $59,400) would save only 500 euros. For incomes above 60,000 euros the maximum benefit would still be capped at 1,000 euros — roughly 83 euros gross per month in the paycheck.

A second cut, this time for lower incomes

Widening the second income bracket may not be the only tax-cutting intervention. That was the signal sent by Marco Osnato, chair of the finance committee of the Chamber of Deputies, who in an interview opened the door to a percentage-point reduction in the first-bracket rate, which could fall from the current 23% to 22%. The maximum annual benefit would be 220 euros, at a cost to the state of roughly 1.5 billion euros (about $1.6 billion).

For lower incomes, the government is also studying a tax break on the thirteenth-month salary: ordinary Irpef could be replaced by a flat tax of 10% or 15%, worth between 200 and 500 euros depending on income.

What is holding the idea back is the size of the eligible population, which could be capped by income. Two thresholds are on the table: 15,000 euros (about $16,200) and 30,000 euros (about $32,400). On top of the thirteenth-salary relief, the government could add a permanent tax break on pay increases from collective bargaining renewals, in this case through an incremental flat tax of 5% for everyone.

Why it matters beyond Italy

Italy runs one of the heaviest labor tax wedges in the OECD, and the perimeter of these measures is set by what Rome can afford without unsettling bond investors who watch the country’s debt trajectory closely. That is the tension running through the whole package: an election-year budget that has to look generous to voters while staying credible to markets. The figures above remain hypotheses under discussion, not approved law. The final shape of the 2027 Budget Law will be set in the autumn, when the government presents the text to Parliament.

Editor’s note

This article was originally published in Italian on money.it by Patrizia Del Pidio on August 25, 2026 as «Irpef 2027 verso il taglio, ipotesi 22% per il primo scaglione e 33% fino a 60.000 euro». It has been translated and adapted for an international audience by the Money.it International desk.