Americans who relocate to Italy face an immediate and unavoidable challenge: navigating two different tax systems at the same time.
The United States requires its citizens to file annual tax returns and report worldwide income no matter where they live, while Italy taxes residents on global income once residency rules are met.
This combination can create double taxation risks, complex reporting requirements, and unexpected liabilities if not handled correctly.
This article provides an overview of the US and Italian tax systems as they apply to Americans moving abroad. It highlights key obligations, common pitfalls, and offers a timeline of actions to help you plan ahead and know when professional advice is essential.
Disclaimer: This article is for informational purposes only and does not constitute tax or financial advice. Rules are complex and subject to change. If you are moving to Italy or already living there, always seek professional advice from a qualified cross-border tax specialist.
The US Tax System for Americans Abroad
The United States is one of only two countries in the world that taxes its citizens on worldwide income regardless of residence. That means that even after relocating to Italy, Americans must continue filing a US tax return every year.
Annual US tax obligations include:
- Form 1040: A federal tax return reporting all income earned worldwide.
- Foreign Bank Account Report (FBAR): Required if the aggregate value of foreign accounts exceeds $10,000 at any point during the year. This is submitted electronically via FinCEN Form 114.
- FATCA reporting (Form 8938): Broader than FBAR, this applies if you hold certain levels of foreign financial assets.
- State taxes: Depending on your last state of residence, you may still have filing requirements there too.
The US system provides mechanisms to avoid double taxation, but these require careful consideration and you should seek help before making any decisions. These tax mechanisms include:
- Foreign Earned Income Exclusion (FEIE) which allows qualifying taxpayers to exclude a portion of earned income if they meet residency tests.
- Foreign Tax Credit (FTC) which allows US taxpayers to offset taxes paid to Italy against US liability.
- US–Italy Double Tax Treaty which provides additional protections, but the treaty’s provisions can be complex and do not cover every situation.
The Italian Tax System
Italy determines tax liability based on residency. You are considered a resident for tax purposes if you spend more than 183 days in Italy in a calendar year, or if Italy becomes your primary centre of vital interests (such as family, home, or economic activity).
Once considered a tax resident, Italy will tax you on your worldwide income, including employment, self-employment, investment income, and pensions.
Some of the main features include:
- Progressive rates: National rates run from 23% to 43%, with additional regional and municipal surcharges.
- Foreign asset reporting: Italian residents must disclose overseas accounts, property, and investments through IVAFE (a tax on foreign financial assets) and IVIE (a tax on real estate abroad).
- Inheritance and gift tax: Italy applies inheritance and gift taxes with allowances that vary depending on the relationship to the deceased, often less generous than US thresholds.
- Special regimes: Italy offers incentives to attract new residents. These include the non-domiciled regime, where qualifying individuals can opt to pay a flat €100,000 per year on foreign income, and the 7% regime for retirees moving to certain southern regions, which applies a reduced tax rate to pension income for ten years.
Where the US and Italian Systems Overlap
The complexity for Americans in Italy lies in the overlap between the two systems.
Both countries claim worldwide taxation and although treaties and credits are designed to mitigate double taxation, there are areas where mismatches occur:
- Double taxation risks: Unless credits and treaty provisions are applied correctly, the same income can be taxed in both countries.
- Timing differences: Italy and the US may recognise income in different tax years, particularly with capital gains or pensions.
- Retirement accounts: Italian treatment of US pensions such as IRAs and 401(k)s can differ significantly from how the IRS treats them, potentially leading to unexpected tax bills.
- Investments: US citizens face punitive rules (PFIC rules) on holding non-US mutual funds, while Italy taxes US-based investments under its own framework. The result can be tax inefficiency on both sides if portfolios aren’t planned in advance.
- Reporting in euros and USD: Italy requires reporting in euros, the US in US dollars. Exchange rate differences can create discrepancies between returns. This can also be problematic when paying any taxes owed if you have to factor in foreign exchange rates.
Without specific expertise, it’s easy to fall foul of both authorities, sometimes years later which can lead to financial penalties and potentially worse.
A Rough Timeline for Tax Planning
The order in which you make decisions matters. Deadlines are strict and preparation should ideally start well before you arrive in Italy.
12+ months before moving
- Review your existing investments and ensure they are tax efficient in both US and Italy.
- Assess your estate planning. US trusts can be inefficient under Italian rules, and wills may need updating.
- Consult a cross-border tax professional to model future liabilities and identify opportunities.
6–12 months before moving
- Understand the Italian residency rules and when you will be considered resident for tax purposes.
- Decide whether you may qualify for special regimes such as the €100,000 non-dom regime or the 7% retiree regime.
- Notify US financial institutions of your relocation. Some may restrict services once you have a non-US address.
- Seek advice about the implications of dealing in both euros and USD for tax filing in both countries.
At the time of moving
- Keep evidence of the date you arrived and days spent in Italy. This may be crucial in determining residency.
- Open an Italian bank account and prepare for annual reporting obligations.
- Make sure healthcare coverage is in place, some regimes require enrolment in the Italian system.
First tax year in Italy
- File your Italian tax return (generally due in November for the prior year’s income).
- File your US return, making the necessary elections (such as FEIE or FTC).
- Submit FBAR and FATCA forms to disclose Italian bank accounts and assets.
Ongoing
- Track your days of residence each year to avoid disputes.
- Monitor exchange rates for reporting income and capital gains.
- Review wills and estate plans to ensure they remain valid in both systems.
Frequently Asked Questions
Moving abroad often raises the same concerns for Americans, especially when it comes to handling two tax systems at once. Below are answers to some of the most common questions about US and Italian tax obligations.
Do Americans living in Italy still have to file US taxes?
Yes. The United States taxes its citizens on worldwide income regardless of where they live. Even if you are a tax resident in Italy, you must file a US tax return every year.
How can I avoid being taxed twice in the US and Italy?
Double taxation is avoided through a combination of the US–Italy tax treaty, the Foreign Earned Income Exclusion, and the Foreign Tax Credit. These provisions are complex and need to be applied correctly, so professional advice is strongly recommended.
When do I become an Italian tax resident?
You are considered tax resident in Italy if you spend more than 183 days in a calendar year in the country, or if Italy becomes your primary centre of vital interests (family, home, or economic ties). Once resident, you must declare worldwide income.
Do I need to report my US bank accounts to Italy?
Yes. Italian residents are required to disclose foreign assets, including overseas bank accounts, through the IVAFE tax. At the same time, US citizens must also report their Italian accounts to the IRS via FBAR and FATCA.
Can I benefit from Italy’s special tax regimes as an American?
Potentially. Italy offers options such as the €100,000 flat tax on foreign income for high-net-worth individuals and the 7% regime for pensioners moving to certain regions. Whether you qualify and whether it is beneficial alongside US obligations depends on your personal circumstances.
Do I need professional tax help or can I file myself?
Some Americans in Italy do attempt to file both returns on their own, but because of timing differences, reporting mismatches and the risk of penalties, professional help is strongly advised. Coordinated advice from both US and Italian specialists can save significant time, money, and stress.
When to Seek Professional Advice
Some expats try to manage on their own, but given the stakes, mistakes can be costly. Professional advice is strongly recommended at key points:
- Before leaving the US: to restructure investments, review estate plans and prepare pensions for Italian tax treatment.
- Shortly after arrival in Italy: to confirm residency status and clarify local filing obligations.
- Every year: to coordinate Italian and US returns, ensuring credits are applied correctly and deadlines are met.
- Before major life or financial events: such as buying/selling property, transferring pensions or starting a business.
Cross-border taxation is highly technical. Even small oversights, like not reporting a bank account, can lead to significant penalties.
How We Can Help
At Experts for Expats, we work with trusted tax partners in both the US and Italy. If you need help with your American tax filings, your Italian tax obligations, or both together, we can introduce you to specialists who will coordinate on your behalf.
This means you’ll receive advice, tailored to your circumstances and help you minimize the stress of trying to reconcile two complex systems alone.
Request an introduction to speak to an Italian tax specialist (or US tax specialist) and get clarity on your obligations before it becomes unnecessarily stressful.
