Tax Treatment of Life Insurance Policies for Employees – New Clarifications from the Revenue Agency

In its response to Inquiry No. 218, dated November 6, 2024, the Revenue Agency revisited the tax treatment of group insurance policies provided to employees, with a particular focus on policies covering the risk of death (commonly referred to as life insurance policies).

The inquiry examined whether it is possible to apply both (i) the general exemption threshold for fringe benefits under Article 51, paragraph 3 of the Italian Income Tax Code (TUIR)—set at €258.23 annually but increased to €1,000 for 2024, or €2,000 for employees with at least one dependent child for tax purposes—and (ii) the 19 percent deduction for expenses from gross tax liability under Article 15, paragraph 1, letter f) of the TUIR, which applies to insurance premiums covering the risk of death or permanent disability of at least 5 percent from any cause.

In its query, the employer, acting as the tax withholding agent, argued that employees should be able to claim the 19 percent deduction on the value of life insurance premiums, even in cases where these policies, owing to the temporarily increased fringe benefit exemption limit for the current year, are classified as “exempt” and therefore excluded from the taxable income of the employees receiving them. This interpretation is based on the absence of explicit provisions within the regulations governing the increased fringe benefit exemption limit that either confirm or deny this possibility.

Revenue Agency’s Guidance

The Revenue Agency, in response to the inquiry, provided guidance on the tax and social security treatment of insurance policies. First, it referred to Circular No. 326 dated December 23, 1997, addressing the “harmonization, rationalization, and simplification of tax and social security provisions concerning employment income and similar types of income.” Section 2.1 specifies that premiums paid by the employer for health, life, and non-occupational accident insurance, among other benefits in kind provided to employees, are included in taxable employment income, explicitly excluding premiums for occupational accident insurance.
Additionally, the Revenue Agency highlighted the exemption outlined in Article 51, paragraph 3 of the Italian Income Tax Code (TUIR), which states that such benefits in kind—such as non-occupational accident, life, and permanent disability insurance policies—”are not included in taxable income if their total value does not exceed €258,23 during the tax year; if this threshold is exceeded, the entire amount is considered taxable.” This provision acknowledges the possibility that employers may offer goods and services to employees without charge, allowing these to be excluded from taxable income up to a certain limit, which is currently set at €1.000 or €2.000, depending on specific conditions. The tax authority emphasized that when fringe benefits are exempt from taxation because they fall below the statutory threshold, the total value of all benefits provided to the employee during the same tax year must still be considered. This includes benefits from multiple employment relationships, if applicable.

The Revenue Agency then turned to the determination of deductions for expenses under Article 15, paragraph 1, letter f) of the TUIR: “From gross tax liability, a deduction of 19 percent is allowed for the following expenses incurred by the taxpayer, provided they are not deductible when calculating the individual incomes that contribute to total taxable income: […] f) premiums for insurance policies covering the risk of death or permanent disability of at least 5 percent from any cause, or the inability to perform daily living activities, provided the insurance company cannot terminate the contract […]”.

In this context, the Agency cited Resolution No. 391 of 2007, reiterating that “to claim a deduction for an expense under Article 15, paragraph 1, letter f) of the TUIR—such as premiums for a group life insurance policy taken out for employees—the expense must have been incurred by the taxpayer and actually borne by them. Consequently, if the premiums were paid by the employer, they can only be deducted under the above provision if their amount was included in taxable income.”

Based on the Agency’s opinion, life insurance premiums provided to employees that fall within the exemption threshold for fringe benefits in the relevant year may only be deducted at 19 percent from the gross tax liability of the employees if these amounts are included in their taxable employment income. The temporary increase in the exemption threshold for 2024 to €1.000–€2.000, compared to the €258,23 stated in the TUIR, does not affect this principle.

Deductible Expenses – Policies for Risk of Death and Permanent Disability

In light of the topics discussed here and the upcoming year-end processes, when employers and tax withholding agents will need to perform tax adjustments on income from employment and similar sources received by their employees and collaborators, it is worth recalling an important detail regarding the 19 percent deduction for expenses related to life insurance and permanent disability policies with a deductible of no less than 5 percent.

Specifically, the deductible premium is capped at €530, with the deduction being progressively reduced—and eventually eliminated—for employees whose total income exceeds €120.000.