Severance Pay (TFR): How It Works and What You're Owed [Guide 2026]

The Trattamento di Fine Rapporto (TFR) — Italy's statutory severance pay — is one of the most important components of every Italian employee's compensation. Knowing how much you are entitled to and how it is calculated is essential for planning your financial future. In this comprehensive guide, we explain everything you need to know about TFR calculation in 2026.

What Is TFR (Trattamento di Fine Rapporto)

TFR, commonly called "liquidazione" (severance) or "buonuscita" (golden handshake), is a sum of money that the employer sets aside each year during the employment relationship and pays to the employee upon termination, regardless of the reason (resignation, dismissal, retirement).

Established by Law No. 297 of May 29, 1982, TFR replaced the former seniority allowance. It is a form of deferred compensation: a portion of your salary is set aside each year and returned to you at the end of the employment relationship, with revaluation interest.

How TFR Is Calculated: The Formula

TFR calculation follows a precise formula established by Article 2120 of the Italian Civil Code:

1. Annual accrual quota

Each year, a quota equal to the annual salary divided by 13.5 is set aside:

Annual TFR Quota = Gross Annual Salary / 13.5

For example, with a gross annual salary of 30,000 euros, the annual quota is: 30,000 / 13.5 = 2,222.22 euros.

The salary to be considered includes all fixed and recurring items: base salary, seniority increments, superminimum, thirteenth month pay, and fourteenth month pay (if provided by the applicable collective agreement).

2. Annual revaluation

The TFR accumulated in previous years is revalued annually with a composite rate consisting of:

• 1.5% fixed (base rate)
• 75% of the ISTAT consumer price index (inflation)

Revaluation Rate = 1.5% + (75% x ISTAT index)

Example: if ISTAT inflation is 2%, the revaluation rate will be: 1.5% + (75% x 2%) = 1.5% + 1.5% = 3%.

3. Year-by-year calculation

TFR accumulates progressively:

• Year 1: TFR = Gross Annual Salary / 13.5
• Year 2: TFR = (Year 1 TFR x revaluation) + Year 2 quota
• Year 3: TFR = (Accumulated TFR x revaluation) + Year 3 quota
• And so on...

TFR Taxation: How Much Tax You Pay

TFR is subject to separate taxation, a preferential tax regime that does not add it to other income for the year. Here is how it works:

How the tax rate is calculated

1. Calculate the "reference income": gross TFR / years of service x 12
2. Apply the average IRPEF rate on this reference income
3. The rate obtained is then applied to the entire gross TFR

2026 IRPEF Tax Brackets

Practical example: with a gross TFR of 40,000 euros accrued over 10 years, the reference income is (40,000 / 10) x 12 = 48,000 euros. The average rate will be approximately 26.7%, so the tax will be approximately 10,680 euros and the net TFR approximately 29,320 euros.

TFR in the Company vs. Pension Fund

Since the 2007 reform, workers can choose where to allocate their TFR:

TFR kept with the employer

• Remains with the employer
• Is revalued using the mechanism described above
• Separate taxation upon termination of employment
• Possibility of requesting advances (see below)

TFR in a pension fund

• Is paid monthly into a supplementary pension fund
• Returns linked to fund performance (potentially higher)
• Preferential taxation: from 15% to 9% (with a 0.30% reduction for each year beyond the 15th)
• Stricter limits on advances and redemptions

TFR Advance: When and How to Request It

The employee can request an advance of up to 70% of the accrued TFR, provided that:

• They have at least 8 years of service with the same employer
• The request is justified by:
  • Extraordinary medical expenses
  • Purchase of a primary residence (for themselves or their children)
  • Parental leave or training
• The advance can be requested only once during the employment relationship

Note: the TFR advance is taxed under the same separate taxation rules, but the rate is calculated on the reference income at the time of the request.

When Is TFR Paid

TFR must be paid upon termination of employment, regardless of the cause:

• Voluntary resignation
• Dismissal (individual or collective)
• Expiration of fixed-term contract
• Retirement
• Death of the worker (paid to heirs)

Payment deadlines are not established by law, but common practice provides for payment within 30-45 days of termination. Some collective agreements specify exact deadlines.

TFR and Inflation: Why Revaluation Matters

Revaluation protects TFR from inflation erosion. During periods of high inflation (such as 2022-2023 with ISTAT rates above 8%), revaluation can be significant. Conversely, with low inflation, the fixed 1.5% component still guarantees a minimum return.

In 2025-2026, with Italian inflation around 1.5-2%, the revaluation rate stands at approximately 2.6-3%, a return that is still competitive compared to many deposit accounts.

Frequently Asked Questions about TFR

Is TFR also due to part-time workers?

Yes, TFR is due to all employees, including part-time workers. The quota is calculated on the actual salary, proportional to the hours worked.

Do I lose my TFR if I am dismissed?

Absolutely not. TFR is an inalienable right of the worker and is always due, regardless of the reason for termination of employment.

How can I check my accrued TFR?

You can find your accrued TFR on your latest pay slip, usually in the "cumulative totals" or "accrued TFR" section. Alternatively, you can request it from the payroll office or labor consultant.

Can TFR be garnished?

Yes, TFR can be subject to garnishment, but with limits: it is generally garnishable up to 1/5 of the net amount.