Italian severance pay (TFR): how it works, is calculated and taxed
TFR — Trattamento di Fine Rapporto — is Italy's mandatory end-of-employment payment. Your employer sets aside a portion of your salary every year, and you receive it when the employment relationship ends.
Every month you work in Italy, your employer sets aside a share of your salary into a fund called TFR. You do not see it on your payslip, you do not receive it immediately, but it is yours. It is paid out when employment ends — whether through resignation, dismissal, retirement or expiry of a fixed-term contract.
How much accrues each year
The annual TFR accrual is calculated by dividing the total gross annual compensation by 13.5 — a fixed divisor set by law (art. 2120 Civil Code). This works out to approximately 7.41% of gross salary per year, regardless of whether your contract provides 12, 13 or 14 monthly payments.
Legal formula (art. 2120 Civil Code)
Annual revaluation: The accrued TFR is revalued each year by 1.5% fixed + 75% of ISTAT inflation. In years of high inflation (such as 2022–2023) the revaluation was significant. Your employer pays a 17% substitute tax on this revaluation every year, so it is taxed separately and excluded from the separate taxation applied when the TFR is paid out — avoiding double taxation.
How TFR is taxed
TFR is not taxed like ordinary employment income. It follows a special system called separate taxation (tassazione separata), designed to avoid penalising someone who receives in one year a sum accumulated over decades.
A reference income is calculated
Gross TFR ÷ years of service × 12. This is a virtual annual income representing what you would have earned if the TFR were spread evenly across all years worked.
The corresponding average IRPEF rate is applied
IRPEF is calculated on the reference income and the effective average rate is derived (e.g. 22%). This rate is then applied to the entire gross TFR.
The Revenue Agency recalculates (within 3 years)
Your employer applies a provisional tax. The Italian Revenue Agency then carries out a definitive recalculation using your average tax rate from the last 5 tax returns. If you owe more, you pay the balance. If you overpaid, you receive a refund.
How to find and calculate TFR from your CU
To know how much TFR you have really accrued, the most reliable source is the Certificazione Unica (CU, formerly CUD) your employer issues each year. The monthly payslip only shows the month's accrual (lines 'TFR maturato mese' or 'accantonamento TFR') and sometimes the total, but not all companies report it. To calculate the net you only need two figures:
- 1.The gross TFR accrued — the total amount set aside so far (from the CU or HR department).
- 2.Your years of service — since you were hired by the same employer.
- 3.With these two values the calculator applies separate taxation and returns the estimated net; the revaluation, already taxed at 17%, is not counted again.
Keep TFR with your employer or move it to a pension fund?
You can leave TFR with your employer or move it to a pension fund (negoziale, aperto or PIP). Return, taxation and accessibility differ. There is no one-size-fits-all answer: it depends on age, time horizon and risk appetite. Here are the main differences.
| Aspect | TFR with employer | Pension fund |
|---|---|---|
| Return | 1.5% fixed + 75% of ISTAT inflation | Variable, market-linked |
| Tax at payout | Average IRPEF rate (≈23–43%) | From 15% down to 9% (reduces after the 15th year of membership) |
| Risk | None, amount guaranteed | Market risk (depends on the fund line) |
| Accessibility | At end of employment (with advances) | Tighter limits, advances only for set cases |
| Protection | INPS Guarantee Fund | Assets separate from the manager |
The choice applies to future TFR and is irreversible: once moved to the fund, that TFR does not go back to the employer. We cannot give personalised advice — a financial adviser can — but the deciding factor is almost always the time horizon: the more years until retirement, the more the favourable taxation and compounding returns of the fund weigh in its favour.
TFR advance: when you can request it
You do not always have to wait until employment ends: in certain cases you can request an advance on the TFR already accrued. Art. 2120 of the Civil Code sets out these base limits (collective agreements may offer better terms):
- ✓At least 8 years of continuous service with the same employer.
- ✓Once during the employment relationship, up to 70% of the accrued TFR.
- ✓Only for specific reasons: buying a first home (for yourself or your children), extraordinary medical expenses, parental or training leave.
- ✓The employer must grant requests within 10% of those entitled and 4% of total employees each year.
What happens if your employer goes bankrupt
TFR is protected. If the employer is insolvent and cannot pay it, the INPS Guarantee Fund (art. 2, L. 297/1982) steps in: it pays the accrued TFR and the last three unpaid monthly salaries. It is activated by filing a claim with INPS after insolvency proceedings begin.
Worked example: 10 years, RAL €30,000
TFR kept with employer, simplified estimate without ISTAT revaluation
Frequently asked questions
Can I lose my TFR?
No. TFR is deferred pay and is always owed to you, whatever the reason employment ends — resignation, dismissal or retirement. If the employer does not pay, the INPS Guarantee Fund steps in.
How long before I receive my TFR?
TFR is usually paid within 30–60 days of the end of employment, unless the collective agreement sets different terms. If it is held in a pension fund, timing depends on the fund's rules.
Does the payslip show the total accrued TFR?
Not always. Many payslips show only the month's accrual. For the total accrued, refer to the Certificazione Unica (CU) or your HR department.
Calculate your net TFR
Enter your years of service and gross TFR (from your CUD or payslip) — get the net amount with separate taxation and a full breakdown.
Open the TFR calculator →