Young people, the flat tax on increases is not always the best choice: here's when it's best to give up

A pay raise in 2027 and two tax discounts to choose from. For an employee under thirty years of age the maneuver provides two, one already known and one new, and the one with the lowest rate is not always the most convenient. The Parliamentary Budget Office shows this with some simulations presented in the hearing on the budget bill.

The first is the 5 percent tax on increases in contract renewals, confirmed for 2027 for private employees with a 2026 income of up to 33 thousand euros. The second is new and applies only to 2027: a 1 percent tax on any increase in earned income compared to the previous year, up to 2,500 euros, for private employees born after 1997 with an income of up to 28 thousand euros. It applies automatically, unless waived, and the increase is calculated in proportion to the days worked.

The two discounts do not add up: if the increase comes from a renewal, the young person must choose, and by giving up 1 percent he returns to the ordinary rules, which include 5 percent.

What makes the difference is what the increase continues to affect. With 5 percent the increase completely leaves the Irpef calculation and does not reduce deductions and bonuses: you pay 5 percent and that's it. With 1 percent, however, the increase continues to count for the employee deduction, the supplementary treatment and the bonus introduced in 2025, which are reduced when income rises. For this reason, writes the PBO, the 1 percent "cannot be defined as a real substitute tax".

The Parliamentary Budget Office, then, gives two examples. Both concern two under 30s without dependent family members, employed all year round, with an increase of 3.5 percent: