What is the TFR
The Trattamento di Fine Rapporto (TFR), commonly called the liquidazione (severance pay), is deferred compensation that accrues throughout an Italian employment relationship and is paid upon termination (for any reason: resignation, dismissal, retirement). It is governed by Article 2120 of the Italian Civil Code.
How the TFR is calculated
Each year, the employer sets aside a portion equal to the annual gross salary divided by 13.5. The accrued amount is revalued annually at a fixed rate of 1.5% plus 75% of the ISTAT inflation index. Example: RAL €28,000 → annual accrual = €28,000 ÷ 13.5 = €2,074.
Where the TFR goes: employer vs pension fund
Private-sector employees can choose where to direct their future TFR:
- With the employer (companies with fewer than 50 employees): remains accounted for by the company
- In a supplementary pension fund: builds an additional pension with extra tax benefits
- To the INPS (companies with 50+ employees): automatically transferred to the INPS treasury fund
Directing the TFR to a pension fund allows you to deduct voluntary contributions (up to €5,164.57 per year) from the IRPEF taxable base, generating immediate tax savings.
TFR taxation
The TFR received is subject to separate taxation at an average rate calculated on the taxable income of the last 5 years of work, with certain reliefs. The rate is therefore proportional to the worker's income history and often turns out to be lower than the marginal IRPEF rate.
TFR advance payment
It is possible to request an advance on the TFR (up to 70%) after at least 8 years with the same employer, for healthcare expenses, purchase of a first home, or parental/training leave. The advance is subject to separate taxation just like the final TFR.