The Italian TFR: what it is and how it is calculated

What the TFR is

For every year you work, your employer sets aside a sum that never appears in your monthly pay: it becomes yours when the employment ends. That sum is the TFR, the trattamento di fine rapporto.

It is not a bonus and not a favour from the employer: it is deferred pay, wages you have already earned and collect later. That is why it is always due. Article 2120 of the Italian civil code opens with the words "in ogni caso di cessazione del rapporto di lavoro subordinato, il prestatore di lavoro ha diritto ad un trattamento di fine rapporto": in every case of termination of subordinate employment, the worker is entitled to a trattamento di fine rapporto. Resignation, dismissal, the expiry of a fixed term, retirement: the reason changes, the entitlement does not.

Italians sometimes call it liquidazione or indennità. Both are everyday words for other things, and on a payslip or in court the difference matters.

The formula is a division, not a percentage

Comma 2 of article 2120 says the TFR is calculated "sommando per ciascun anno di servizio una quota pari e comunque non superiore all'importo della retribuzione dovuta per l'anno stesso divisa per 13,5": by summing, for each year of service, a share equal to the pay due for that year divided by 13.5.

Divided by 13.5. Not multiplied by a percentage. That division comes to 7.4074% of annual pay.

The 6.91% you find on almost every page comes from a second rule, in a different statute. Article 3, comma 15 of law 297/1982 raises the employer's social-security contributions by 0.30% of the contribution base from July 1982 and by a further 0.20% from January 1983. Comma 16, which almost nobody cites, is the one that moves your money: "I datori di lavoro detraggono per ciascun lavoratore l'importo della contribuzione aggiuntiva di cui al comma precedente dall'ammontare della quota del trattamento di fine rapporto". Employers deduct that additional contribution from the TFR quota.

The 0.50% is written nowhere: it is the sum of two separate increments. And 7.4074% less 0.50% is 6.9074%, which rounds to the famous 6.91%.

On 30,000 euro of annual pay:

Multiplying straight by 6.91% would give 2,073 euro. The gap is 78 cents a year: trivial over one year, tens of euro over a career, and the wrong number either way.

Which pay counts towards the TFR

Comma 3 sets the general rule: annual pay "comprende tutte le somme, compreso l'equivalente delle prestazioni in natura, corrisposte in dipendenza del rapporto di lavoro, a titolo non occasionale e con esclusione di quanto è corrisposto a titolo di rimborso spese". All sums, including the equivalent of benefits in kind, paid in connection with the employment other than occasionally, excluding anything paid as an expense reimbursement.

So in: base pay, seniority increments, personal top-ups, the tredicesima and quattordicesima extra monthly payments, benefits in kind at their stated value. Out: expense reimbursements and anything paid once for an extraordinary reason.

But comma 3 opens with four words that change everything: "salvo diversa previsione dei contratti collettivi", unless the collective agreement provides otherwise. It is the CCNL, your sector's collective agreement, that decides which items count towards the TFR, and it may exclude some. That is why the calculator asks for the pay counting towards the TFR rather than the gross on any single payslip: your collective agreement defines the base.

There is a consequence the 6.91% hides. The quota is computed on the pay that counts towards the TFR, while the 0.50% is computed on the retribuzione imponibile, the social-security contribution base: two different bases defined by two different statutes. They usually coincide, but when the CCNL separates them the 6.91% is no longer exact and two separate calculations are needed.

The annual revaluation

The fund does not sit still. Every 31 December it is revalued, at a rate comma 4 composes as follows: 1.5% fixed plus 75% of the rise in the ISTAT FOI index (the consumer price index for blue- and white-collar households) over December of the previous year.

Two details in the text change the answer.

The first is in the opening words: the revaluation applies to the treatment "con esclusione della quota maturata nell'anno", excluding the quota accrued in the year. The quota you have just set aside is not revalued. In a first year of employment the revaluation is therefore exactly zero, and in every later year it is computed only on what was there at the preceding 31 December.

The second is that the revaluation runs "su base composta", on a compound basis: it accumulates on the already-revalued fund. Ten years at 2.3% is not 23%.

At 31 December 2025 the rate was 2.31%: the FOI index moved from 120.2 (December 2024) to 121.5 (December 2025), a rise of 1.0815%, of which 75% is 0.8111%, plus the fixed 1.5%.

If the employment ends mid-year, comma 5 takes the 1.5% pro rata by month and the ISTAT rise measured in the month of termination against December of the previous year. The fifteen-day rule applies here too: fractions of a month of fifteen days or more count as a whole month.

The 2026 change of index base

There is a trap affecting every calculation made in 2026, and it is invisible if you only look at the numbers.

From January 2026 ISTAT publishes the FOI on base 2025 = 100: January 2026 reads 100.4 and August 2026 reads 103.7. December 2025, the index the year's revaluation starts from, is published on base 2015 = 100 and reads 121.5.

Dividing 103.7 by 121.5 gives minus 14.7%. A revaluation of 1.5% plus 75% of minus 14.7% becomes minus 9.5%: a shrinking fund, which is precisely what the statute does not contemplate.

Both figures are FOI indices published by ISTAT for the same country, so nothing on the page warns you that they are not comparable. For a 2026 calculation take two indices on the same base, from the linked series, or use the monthly revaluation coefficient ISTAT publishes directly.

Two taxes, which are not the same tax

The TFR is taxed twice, on two different parts of the fund and at two different moments.

17% a year on the revaluation

Article 11, comma 3 of legislative decree 47/2000 applies to the revaluation "l'imposta sostitutiva delle imposte sui redditi nella misura del 17 per cento", a substitute tax of 17%. It was 11% up to the revaluations accrued in 2014; from 1 January 2015 it is 17%.

Comma 4 adds the sentence that decides who bears it: "L'imposta è imputata a riduzione del fondo", the tax is charged against the fund. Your TFR therefore grows by the revaluation net of 17%, and the following year's revaluation is computed on that already-reduced figure. The employer remits it by 16 February of the following year.

IRPEF once, at payout

The accrued amount, instead, pays IRPEF once, when you receive it. Article 19 of the TUIR provides that the TFR is income "riducendo il suo ammontare delle rivalutazioni già assoggettate ad imposta sostitutiva", reduced by the revaluations already subject to the substitute tax: the revaluation has paid its 17% and is not taxed twice.

The rate is an average, and it annualises by twelve

This is the biggest difference between a correct calculation and a wrong one.

Separate taxation does not apply the marginal rate on your payslip. Comma 1 of article 19 builds a reddito di riferimento, a reference income: it takes the base, divides it "per il numero degli anni e frazione di anno preso a base di commisurazione" and multiplies the result "per dodici", by twelve.

Twelve, not 13.5. Since the annual quota is one thirteenth-and-a-half of pay, annualising it by twelve produces about 88.9% of annual pay. IRPEF is computed on that figure, and the ratio of tax to reference income is the average rate applied to the TFR.

On 40,000 euro of annual pay, whatever the length of service:

A calculation done at the marginal rate would overstate the tax by more than a third.

Note a property that surprises people: the length of service does not change the rate. Dividing by the years and multiplying by twelve takes it out of the sum, so at the same pay a 35-year TFR is taxed at the same rate as a 5-year one.

The payslip is not the last word

What the employer withholds at payout is a withholding, not the final bill. The same comma 1 continues: the tax offices "provvedono a riliquidare l'imposta in base all'aliquota media di tassazione dei cinque anni precedenti a quello in cui è maturato il diritto alla percezione, iscrivendo a ruolo le maggiori imposte dovute ovvero rimborsando quelle spettanti". They reassess the tax on the average rate of the five preceding years, raising a demand for any extra tax due or refunding any overpaid.

Both directions are written into the statute: a bill can arrive, and so can a refund. Comma 1-bis specifies that if there was no taxable income in one or more of those five years the average is taken over the years that had income, and if none did, the first IRPEF bracket rate applies, 23% today.

No calculator can anticipate the reassessment, because it needs five years of your own tax history. What can be estimated, and what is estimated here, is the withholding at payout: the figure you read on the payslip.

The 309.87 euro per year is not for the TFR

A reduction of 309.87 euro for each year of service circulates as though it applied to everyone. In the text of article 19 it sits in comma 2-bis, which concerns "indennità equipollenti, comunque denominate", equivalent severance payments however named: public-sector buonuscite and similar schemes, not the private-sector TFR.

What the private TFR does have is in comma 1-ter, and it applies only to fixed-term contracts of effective duration not above two years: 61.97 euro less tax for each year, pro-rated by month for shorter periods and reduced proportionally for part-time work.

In the text in force the figure is still written in lire, "lire 120 mila". The text taking effect in 2027 writes it in euro, 61.97, confirming the conversion. Deducting 309.87 euro a year from an ordinary TFR understates the tax.

The advance

Comma 6 of article 2120 lets you draw part of the TFR while still employed, on three conditions together:

1. At least eight years of service with the same employer.
2. No more than 70% of the treatment you would be due if the employment ended on the date of the request.
3. Once only during the employment.

Two grounds are allowed and they are exhaustive: medical expenses for extraordinary treatment recognised by the competent public health structures, and the purchase of a first home for yourself or your children, documented by a notarial deed. The Constitutional Court, in judgment 142/1991, extended the second ground to a purchase in progress, if proved by adequate means.

The employer is not obliged to satisfy every request: comma 7 limits them each year to 10% of those entitled and in any case to 4% of total staff. The CCNL may provide more favourable terms and priority criteria. The advance is deducted from the final TFR, and the same rate applies to it, subject to adjustment at final payout.

TFR with the employer or in a pension fund

If you route the TFR to a complementary pension scheme, those amounts leave the rules on this page: they follow legislative decree 252/2005 rather than the separate taxation of article 19.

One detail of comma 1 is worth knowing before you choose, though: the reference income is computed on the base "aumentato delle somme destinate alle forme pensionistiche", increased by the amounts routed to pension schemes. Moving part of the TFR into a fund does not lower the rate applied to what stays with the employer. Those sums still count towards the percentage.

The legal citation changes address on 1 January 2027

Almost every page on this subject cites article 19 of the TUIR. From 1 January 2027 that article is repealed by legislative decree 19 June 2026, no. 117, and its content becomes article 21 of the new consolidated text on income taxes, titled "Indennità di fine rapporto e di fine servizio".

The substance does not change: the division by the years, the multiplication by twelve, the five-year average, the fixed-term reduction. The lire become euro (61.97 and 309.87 written out) and the cross-reference to legislative decree 124/1993 becomes one to 252/2005.

On the same day article 241, comma 1, letter dd) of legislative decree 33/2025 repeals commi 3, 4 and 4-bis of article 11 of legislative decree 47/2000, the provision setting the 17% substitute tax, and its content moves into the consolidated text on payments and collection. Article 2120 of the civil code, by contrast, stays where it is.

A worked example

Annual pay counting towards the TFR of 30,000 euro, ten years of service, an average revaluation of 2.31% a year.

Together the two taxes take 22.41% of the fund before either of them. With ten years of service you could also request an advance of up to 15,823.90 euro, once only, for extraordinary medical expenses or to buy a first home.

From your pay to your number

The formula is simple, but the two taxes, the compound revaluation and the reference income annualised by twelve make the arithmetic tedious and easy to get wrong by hand.

Put your annual pay counting towards the TFR, the years and months of service and the revaluation rate into the Italian TFR calculator: it shows the gross accrued, the estimated net and every line in between. If you want to understand the other item your payslip accrues and does not explain, the tredicesima works in twelfths and is taxed in an entirely different way.