How does the TFR tax work? Learn how to calculate the TFR and get the amount of your liquidation
The end-of-course treatment also known to the acronym of TFR, or still known as liquidation, allows the worker to obtain at the end of a contract, a certain amount accrued during the working period. How does the “TFR tax” work?
Making the calculation of the net tfr is often a necessity to be able to understand what will be the amount that can be obtained when you are fired, you retire, or simply when the employment contract reaches its natural deadline.
For the calculation of the liquidation, the rules to be followed are those provided for by Article 2120 of the Civil Code and Article 17 of the TUIR.
But how to make the tfr calculation in the paycheck? How to know what will be the taxation of tfr liquidation? Let’s discover together in this guide how the tfr taxation calculation works!
How the TFR tax works in the paycheck
The liquidation or end of relationship treatment provides for an amount equal to or below gross remuneration, which is then divided for a period of 13.5 working months and multiplied by years of work carried out at the same holding.
When the work performance is below the year, the amount will then be reproportioned, and a fraction of time of more than 15 days will be considered as a whole month.
The annual amount of the TFR due has a tax that is revalued at the end of the year, on 31 December. On this date, therefore, for the calculation, a fixed percentage of 1.5% is applied, 75% of the sum accrued on the basis of the increase in the price index as indicated by ISTAT is indicated.
In order to be able to form the TFR, therefore, these are: the salary, the remuneration and the allowances that then constitute the remuneration for the benefits that derive from the employed work.
The liquidation is determined by a so-called separate tfr taxation, this is used because the end-of-relational treatment is formed in a usually multi-year period, for this reason it cannot accumulate to the taxation of income of the year in which you then collect concretely. So the tfr taxation will not affect the tax return, unless there is an option that provides for the ordinary taxation of the liquidation.
In any case, the TFR taxation calculation is quite complex, because this takes into account a number of determining factors such as:
- the reference annual income (depending on the years worked)
- the average rate that applies to income
- the period in which the quotas mature
- TRF tax held at source
On the TFR those who have been working for at least 8 years for a company it is possible to also request an advance of 70% maximum based on the amount accrued over the years.
The advance of the TFR can only be obtained if the company for which you work has at least 25 employees. In the event that the advance payment for medical expenses is requested, the TFR advance tax provides for a withholding tax of 15%. If you require a advance for children, the first home, or other personal expenses, the taxation of the TFR is 23% on a fixed amount.
What does separate taxation of tfr mean
How to calculate the tfr? To carry out the calculation of the separate taxation of the end-of-relations processing it is necessary to follow the rules provided for by art. 17 of the TUIR. The disbursement of the TFR to employees provides for a separate taxation, as the income deriving from this relationship has matured over several years of work at a single company.
Why do we use separate taxation?
Simple, if the worker were to pay the TFR with a traditional tax he would pay excess taxes that would overly deduct the final sum of the liquidation.
Therefore, by the principle of fairness, the income produced in several years cannot be taxed every year with the reference rates, but taxation will be carried out by means of an average rate.
Then the application of the average rate will then be placed on the net TFR and not on the gross one. So before making the calculation of separate taxation it is necessary to know the exact amount of the net TFR.
Finally, the tax is calculated not only by the employer but also by the Revenue Agency, and in the case the amount of the TFR for the Revenue Agency should be lower than that calculated by the tax substitute, then it will be the same as the entity to request the difference due to the worker.
How to Calculate TFR
The calculation of the TFR at the separate rate of taxation must be made in accordance with the rules laid down by TUIR directly by the employer.
The first thing to do is to move from the gro-GST TFR to the net TFR. Then it is necessary to proceed to the calculation from which the taxable base is obtained for the calculation of the average TFR, this allows to calculate the reference amount on which the separate tax rate to be applied.
The calculation of the net TFR is carried out by multiplying the gross TFR by 12 (the fixed parameter) and then dividing it all for the years of work carried out.
Therefore, if you have accrued over the years a Gross TFR of 60 thousand euros in 25 years of work, you will get the amount of the Net TFR doing a series of specific calculations, the first provides that you will calculate the amount on which the rate will then apply with the formula:
(TFR LORDOx12)/YEARS OF WORKING (60,000×12):25.
This formula will allow you to have the right net amount of the TFR which is equal to 28,000 euros. After calculating the net TFR, the IRPEF rate should also be calculated.
The calculation of the rate will proceed by using the tax system with income brackets. Let’s imagine, therefore, that the rate is equal to 25%, then you will have to go to calculate: 28,800 to 25%, which in this case is equal to 7200 euros.
So to be able to calculate the net TFR it will be necessary to go and subtract the amount of the IRPEF from that of the Gross TFR.
So, in this case it will have to be done: 60,000-7,200. The result will be €52,800, and this will define the net TFR.
Once you have obtained the TFR, you will have to calculate the separate TFR taxation, which in this case will be 1-2%. So to get the amount of the TFR you will need to go and reduce the amount of the average separate tax rate.
Therefore, in our case it will be necessary to deduct 12% from the amount of the Net TFR, so with the separate taxation the amount of taxes will be 6336 euros, while the sum due to the worker on 60 thousand euros will be 46,464 euros.
Finally, you can also proceed to the TFR calculation online, with programs that can be found directly by doing a search on the main browsers, such as Google. Or you can check the gross TFR accrued directly on the December paycheck.
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