U.S. taxes for Americans in Italy: what to file, and how to catch up.
Italy has a large community of dual citizens and Americans who married, retired or moved for work, and all of them still file a U.S. return every year. Italian tax usually covers the U.S. bill. The details to get right are Italian funds, TFR, pensions and Italy’s own taxes on foreign assets. Most people who fell behind can catch up under the Streamlined procedures, with no penalty if they qualify.
Sound familiar?
- You got Italian citizenship through your family and moved over.
- You retired to Italy and assumed U.S. filing stopped when you left.
- Your employer sets aside TFR for you every year.
- Your Italian bank asked for your U.S. tax number.
How does the IRS treat Italian pensions, TFR and savings?
Every one of these goes on your FBAR. What differs is how the IRS taxes them.
| Account | U.S. treatment | |
|---|---|---|
| INPS pension | Italy taxes it, and the U.S. can too, with a credit for the Italian tax. | Mostly friendly |
| TFR (severance) | Usually taxable for the U.S. when it’s paid out, if your employer holds it. If it goes into a pension fund, U.S. treatment depends on the fund. | Check first |
| Italian funds | Usually PFICs (Form 8621), with complex reporting and tax rules. | Watch out |
| Italian government bonds (BTP) | Interest is taxable for the U.S., and the account holding them counts toward your FBAR total. | Taxable |
| IVAFE and IVIE | Italian taxes on assets abroad, like your U.S. accounts. They aren’t income taxes, so they don’t reduce your U.S. tax. | Plan ahead |
| Selling your home | The U.S. excludes $250,000 of gain on a main home ($500,000 for couples), measured in dollars, so euro moves change the gain. | Plan ahead |
Which Italian investments are PFICs?
Italian funds (fondi comuni), SICAVs, and the European ETFs Italian banks and brokers sell. For U.S. tax they’re passive foreign investment companies, or PFICs, with their own reporting and harsh default tax rules.
- Each fund needs its own Form 8621 in most years, and gains can be taxed at the top U.S. rate plus an interest charge, unless an election was made in time.
- Bank-managed portfolios (gestioni patrimoniali) often hold several funds, each its own form.
- Not PFICs: shares of individual companies, BTPs and other government bonds, and bank deposits.
Many Italians hold BTPs directly, which is far simpler for the U.S. than funds.
What does the U.S.–Italy tax treaty actually say?
The treaty was signed in 1999 and took effect in 2009. For Americans living in Italy, these parts matter most:
- The saving clause. The U.S. can tax its citizens as if the treaty didn’t exist, except for the provisions the treaty lists.
- U.S. Social Security. For someone who is a citizen of both countries and lives in Italy, it’s exempt from U.S. tax. If you’re only a U.S. citizen, the U.S. can still tax it.
- Relief from double tax. The U.S. gives a credit for Italian income tax (IRPEF, with its regional and municipal surcharges) on the same income.
Social security contributions are covered by a separate U.S.–Italy agreement, which generally means you pay into one system, not both. Read the U.S.–Italy tax treaty on IRS.gov.
When are Italian and U.S. taxes due?
Both tax years run January to December, so each Italian year lines up with one U.S. return. Your Certificazione Unica (CU) from your employer gives most of what the U.S. return needs.
| Italy | United States | |
|---|---|---|
| Tax year | January to December | January to December |
| Annual return | Modello 730 by September 30, or Modello Redditi by October 31 | April 15, moved to June 15 automatically when you live abroad, or October 15 with an extension |
| Paying the tax | Withheld from your salary, with balances and advances due in June and November | April 15, even if you file later |
| Foreign accounts | The RW section of the Italian return, with IVAFE on foreign financial assets | The FBAR, due October 15, filed online |
Foreign tax credit or exclusion: which wins in Italy?
Usually the foreign tax credit. Italian income tax reaches 43%, plus regional and municipal surcharges, so Italian tax on a salary is normally more than the U.S. tax on it, and the unused credit carries forward for up to 10 years.
- Special regimes are the exception. Italy’s regime for workers who move there exempts part of their salary, and the flat tax for wealthy new residents replaces Italian tax on foreign income with a fixed sum. Both leave less Italian tax to credit, so the exclusion, up to $130,000 for 2025, can do more.
- Retirees on U.S. Social Security, pensions and IRAs use neither much: that’s U.S. income, outside the exclusion.
- Families with children usually keep the credit, because it allows the refundable part of the U.S. child tax credit, up to $1,700 per child for 2025.
We run your returns both ways before choosing. How we compare the exclusion and the credit.
A worked example: a dual citizen in Bologna
Giulia was born in New Jersey, got Italian citizenship through her grandparents, and moved to Bologna in 2017. She earns €45,000, her employer holds her TFR, and she has BTPs and an Italian fund at her bank. She never filed U.S. returns after the move.
| Item | How it’s handled |
|---|---|
| Salary | Italian tax is higher than the U.S. tax on it, so with the foreign tax credit her U.S. tax on it is $0. |
| TFR | Held by her employer, so it’s generally taxed for the U.S. when it’s paid out, not each year. |
| BTPs | The interest goes on her U.S. return, with a credit for the Italian tax on it. |
| Italian fund | A PFIC: a Form 8621 in each year filed. |
| Catching up | Three years of returns and six FBARs under the Streamlined procedures, with no penalty if she qualifies. |
Catching up from Italy
Most Americans in Italy who fell behind without meaning to can catch up under the Streamlined Foreign Offshore Procedures: three years of returns, six years of FBARs and, if you qualify, no penalties. If only FBARs are missing, or you’ve moved back to the U.S., another route may fit better. See every IRS catch-up option for expats, compared.
Common questions
Do I pay U.S. Social Security tax in Italy?
Generally not if you pay into the Italian system. The U.S.-Italy totalization agreement prevents paying into both systems for the same work in most cases.
Is my U.S. Social Security taxed if I live in Italy?
If you’re a citizen of both the U.S. and Italy and live in Italy, it’s exempt from U.S. tax under the treaty. If you’re only a U.S. citizen, the U.S. can still tax it.
Do I need to declare my U.S. accounts in Italy too?
Yes, separately. Italian residents report assets abroad in the RW section of their Italian return and may owe IVAFE. That’s an Italian filing, alongside your U.S. FBAR, not instead of it.
Is my TFR taxed by the U.S. every year?
Usually not, if your employer holds it: it’s generally taxed when it’s paid out. If your TFR goes into a pension fund instead, the U.S. treatment depends on the fund, and we check it.
Does IVAFE reduce my U.S. tax?
No. IVAFE and IVIE are taxes on the value of assets, not on income, so they don’t count toward the foreign tax credit.
I'm a dual citizen. Can I just stop being American for tax purposes?
Only by formally renouncing U.S. citizenship, and past years still have to be filed first. Many dual citizens catch up, then decide. More on renouncing.
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