US Taxes When Living in Italy: What Americans Abroad Must File (2026)

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Moving to Italy is a dream for millions of Americans. But one question keeps cropping up in every expat forum: do you still need to pay US taxes after you move?

The answer is yes. The United States taxes its citizens on worldwide income, no matter where they live. It is one of only two countries in the world that does this. So if you are an American living in Florence, Rome, or a Sicilian hill town, you must still file a US tax return every year.

That sounds alarming. But the US tax rules also include several protections that prevent you from being taxed twice on the same income. This guide explains the key obligations and how to manage them.

The Golden Rule: Americans File US Taxes Wherever They Live

The Internal Revenue Service (IRS) requires US citizens and Green Card holders to file a federal tax return if their income is above the standard filing threshold — roughly $14,600 for a single filer in 2025.

This applies even if you have lived in Italy for several years, you earn no income in the United States, or you pay Italian income tax on your earnings.

Filing a return does not automatically mean you owe US tax. But failing to file is a serious mistake. The IRS can issue penalties of $10,000 or more for non-compliance. The good news is that most Americans in Italy end up owing little or nothing to the IRS once they apply the correct reliefs.

FBAR: Reporting Your Italian Bank Accounts

If you open a bank account in Italy — which you will almost certainly need to do — you must report it to the US Treasury using the Foreign Bank Account Report (FBAR), also called FinCEN Form 114.

The threshold is low. If your Italian bank accounts hold more than $10,000 at any point during the year, you must file. This includes savings accounts, current accounts, and investment accounts.

• FBAR is filed online via the FinCEN website, not with your tax return
• The deadline is 15 April, with an automatic extension to 15 October
• The penalty for wilful non-compliance can be the greater of $100,000 or 50% of the account balance
• Innocent non-filers can often resolve issues through the IRS Streamlined Filing Compliance Procedures

For most Americans in Italy living on pension income or modest savings, FBAR is a straightforward annual task. Many people file it alongside their US tax return using a specialist expat accountant.

Our full Move to Italy guide covers the practical financial set-up steps in detail, including what to expect when opening your first Italian bank account.

FATCA: The Larger Foreign Asset Reporting Requirement

FATCA stands for the Foreign Account Tax Compliance Act. It is a separate reporting requirement for US citizens with significant foreign financial assets, filed using Form 8938.

You must file Form 8938 if your foreign financial assets exceed:

• $200,000 at year-end, or $300,000 at any point during the year — for single filers living abroad
• $400,000 at year-end, or $600,000 at any point — for married couples filing jointly while living abroad

Note that FBAR and FATCA overlap but are not the same requirement. You may need to file both. Most people who move to Italy for retirement or lifestyle reasons are below the FATCA threshold, but it is worth checking with a qualified tax adviser if you have investment accounts or property in Italy.

The Foreign Earned Income Exclusion (Form 2555)

The Foreign Earned Income Exclusion (FEIE) is the main tool Americans use to reduce their US tax bill while living abroad. It lets you exclude a significant portion of your foreign-earned income from US tax. In 2025, the exclusion amount is $126,500 per person.

To qualify, you must meet one of two tests:

• Bona Fide Residence Test: You are a genuine resident of Italy and have been for a full tax year
• Physical Presence Test: You spend at least 330 full days outside the United States in a 12-month period

The FEIE applies to earned income only — wages, self-employment income, freelance earnings. It does not apply to pension income, Social Security benefits, interest, dividends, or capital gains.

If you are retiring to Italy and living on pension income, you cannot use the FEIE. Your focus instead should be on the Foreign Tax Credit.

The Foreign Tax Credit: Avoiding Double Taxation

The Foreign Tax Credit (FTC) is the main protection against being taxed twice on the same income. Here is how it works: if you earn income in Italy and pay Italian income tax on it, you can claim a credit on your US return equal to the Italian tax you paid.

Since Italian income tax rates are generally higher than US rates, this often eliminates your US tax liability entirely. You claim the FTC using Form 1116.

The FTC is especially useful for retirees with Italian-sourced rental income, freelancers and remote workers earning in euros, and people with Italian pensions or annuities. You can claim either the FEIE or the FTC for a given item of income, but generally not both. Most tax advisers run the numbers both ways to find the more beneficial approach.

How the Italy-US Tax Treaty Works for You

Italy and the United States have a tax treaty that was signed in 1985 and updated in 1999. It determines which country has the right to tax certain types of income, which can significantly simplify your situation.

• Pensions: Private pensions paid by a US company are generally only taxable in the US
• Government pensions: Military retirement pay and US government pensions are only taxable in the US
• Social Security: US Social Security benefits are generally only taxable in the US under the treaty
• Interest: Interest from US sources is generally only taxable in the US
• Dividends: The US can tax dividends paid by US companies, but at a reduced rate for Italian residents

The treaty significantly simplifies the tax situation for many American retirees in Italy, particularly those drawing a US pension or Social Security. It is worth reviewing in detail with your tax adviser before you move.

Italian Income Tax: What You Pay to Rome

Once you are an Italian tax resident — which generally happens after you spend more than 183 days in Italy in a calendar year — you must file an Italian income tax return and pay Italian income tax (IRPEF).

Italian income tax rates for 2026 are:

• Up to €28,000: 23%
• €28,001 to €50,000: 35%
• Above €50,000: 43%

There are additional regional and municipal surcharges on top of these rates, which vary by where you live. You will also need a codice fiscale (Italian tax identification number) from the Agenzia delle Entrate. This is one of the first practical steps when settling in Italy. See our first 90 days in Italy checklist for the exact steps to get your codice fiscale and register your residency.

Italy also offers a special 7% flat tax scheme for retirees who move to southern Italian towns with fewer than 20,000 residents. Under this scheme, your foreign pension income is taxed at just 7% for up to 10 years — a significant saving for many American retirees.

Social Security When You Are Living in Italy

If you receive US Social Security benefits, you can receive them in Italy without any issue. The US Social Security Administration pays benefits directly to bank accounts anywhere in the world, including Italian accounts.

Italy and the United States also have a Totalization Agreement. This ensures that if you have worked in both countries, your combined working years can count towards qualifying for Social Security benefits in either country. You will not generally pay Italian social contributions on your US Social Security income.

Finding the Right Tax Adviser

Navigating dual-country taxes is genuinely complex. The right move is to hire a CPA or tax attorney who specialises in US expat taxes, ideally someone familiar with the Italy-specific rules.

Look for someone who is qualified in both US and Italian tax law, has specific experience with Italy-resident Americans, and can prepare Form 1040, FBAR, Form 8938, and Italian tax returns in one engagement. Expect to pay between $500 and $2,000 per year for professional expat tax preparation, depending on the complexity of your situation.

Useful starting points include IRS Publication 54 (Tax Guide for US Citizens Abroad), the American Citizens Abroad (ACA) organisation, and the Federation of American Women’s Clubs Overseas (FAWCO) networks.

Before you start, it also helps to understand your residency options. Our Italian Elective Residency Visa guide explains how to establish legal Italian residency — which determines when Italian tax obligations begin. And our Banking in Italy for Americans guide covers how Italian bank accounts work and what your US bank needs to know when you move.

Frequently Asked Questions

Do Americans living in Italy still have to pay US taxes?

Yes. The United States taxes its citizens on worldwide income regardless of where they live. You must still file a US federal tax return each year. However, the Foreign Tax Credit and tax treaties can significantly reduce or eliminate the actual US tax owed.

What is the FBAR threshold for Americans in Italy?

If your Italian bank account balance exceeds $10,000 at any point during the year, you must file an FBAR (FinCEN Form 114). The deadline is 15 April, with an automatic extension to 15 October.

Can I use the Foreign Earned Income Exclusion if I retire to Italy?

The FEIE only applies to earned income — wages, freelance, and self-employment income. If you are retired and living on a pension or Social Security, you cannot use the FEIE. Instead, look at the Foreign Tax Credit and the Italy-US tax treaty to reduce your US tax bill.

Will I be taxed twice on the same income in Italy and the US?

Not on the same income. The Foreign Tax Credit allows you to offset Italian taxes paid against your US tax liability. The Italy-US Tax Treaty also allocates taxing rights between the two countries for specific income types, often meaning only one country taxes each type of income.

When do you become an Italian tax resident?

Italy considers you a tax resident if you spend more than 183 days in the country in a calendar year, or if you register your legal address (residenza) in an Italian municipality — whichever comes first. Once you are an Italian tax resident, you must file an Italian tax return.

You Might Also Enjoy

• Banking in Italy for Americans: How to Open an Account and Manage Your Money
• Your First 90 Days in Italy: A Practical Checklist for Americans
• The Italian Elective Residency Visa: What Americans Actually Need to Know

Plan Your Move to Italy

Ready to take the next step? Our Ultimate Italy Travel Guide covers everything from where to stay to how to get around — the perfect starting point for planning your Italian adventure or relocation.

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