Do I have to pay U.S. taxes if I live in Italy? (2023)

Is US income taxed in Italy?

Does Italy Tax Foreign Income? Taxpayers who are considered residents of Italy will pay taxes on their income worldwide. Those who are not tax residents of Italy will pay taxes only on their income from Italian sources.

Yes. If you are an American living abroad as a US citizen, you must file a US federal tax return and pay US taxes on your worldwide income no matter where you live at that time. In other words, you are subject to the same rules regarding income taxation as people living stateside.

Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.

Other provisions of the Italy-US double tax treaty

The new double taxation agreement allows the United States to tax US branches of Italian companies. The new treaty also allows Italy to tax a foreign company on a dividends equivalent amount. The agreement also changes the way pensions and other benefits are taxed.

The 2021 tax rates for residents and non-residents range from 23 percent to 43 percent plus an additional regional tax of between 0.8% ad 3.33% Furthermore, an additional municipal tax could be due; the tax rates range from 0 to 0.9 percent depending on the municipality.

Conditions for expats retiring to Italy

In order to retire to Italy, a foreign citizen must comply with a few requirements. Among these, the foreign citizen must be retired and have a minimum annual income of EUR 31,000. For married couples seeking to retire in Italy, the minimum amount necessary is EUR 38,000.

Filing Taxes with the IRS While Living in Another Country

United States citizens who work in other countries do not get double taxed if they qualify for the Foreign-Earned Income Exemption. Expats should note that United States taxes are based on citizenship, not the physical location of the taxpayer.

How Many Days Can You Be in the U.S. Without Paying Taxes? The IRS considers you a U.S. resident if you were physically present in the U.S. on at least 31 days of the current year and 183 days during a three-year period. The three-year period consists of the current year and the prior two years.

The expatriation tax provisions (prior to the AJCA amendments) apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their U.S. residency for tax purposes, if one of the principal purposes of the action is the avoidance of U.S. taxes.

How does IRS know about foreign income?

One of the main catalysts for the IRS to learn about foreign income which was not reported is through FATCA, which is the Foreign Account Tax Compliance Act. In accordance with FATCA, more than 300,000 FFIs (Foreign Financial Institutions) in over 110 countries actively report account holder information to the IRS.

In case you are an Italian citizen or you are applying for Italian citizenship, then you will be liable to pay Italian taxes on your public US pension. In this case your American pension will be counted as a foreign income, therefore you must declare it in your income tax return and pay tax on it.

Italy is happy to welcome retiring expats and their spending money. But to legally live in Italy as a retiree, you'll need to be able to show that you still have an income. Retirement income can come from many sources including: Social security checks.

Do Dual Citizens Have to Pay Taxes in Italy? The short answer is that you have to pay taxes in Italy only if you are actually living there over 183 days of the year. There is a distinction between being an Italian citizen and an Italian resident, and it makes all the difference when it comes to tax liability.

An individual who is registered with the Registry of the Resident Population for less than 183 days in a calendar year is generally considered a non-resident for tax purposes (although other factors have to be taken into consideration) and is thus subject to taxation only on Italian source income.

A person is considered to be resident in Italy for income tax purposes if, for the majority of the year (at least 183 days a year, 184 for leap years): they are entered in the National Registry of the Resident Population in Italy; or. they have their place of residence or habitual residence in Italy.

This includes Americans who will work or transact business and persons who want to simply live in Italy. Americans must have an entrance visa which should be obtained at an Italian consulate before coming to Italy, in order to remain in Italy more than three months and gain resident status.

How difficult is it to move to Italy? Unless you have an Italian or E.U. passport, the process of obtaining a visa and permanent residence in Italy is a long one full of bureaucratic hurdles. Generally speaking, Americans must first apply for a visa at the consulate that serves their state or region.

How hard is it for a U.S. citizen to move to Italy?

Italy is notorious for being quite difficult with visas and it's safe to say that the visa options for Americans to move to Italy are few and will take quite a bit of effort to obtain. But Italy is one of the most beautiful countries in the world!

If you are among the growing number of Americans who spend part of their career working outside the United States, both the United States and a foreign social security system cover your work. You would normally have to pay social security taxes to both countries for the same work.

US social security taxes consist of 6.2% for employees plus 2.9% Medicare Tax, or a total of 15.3% of income for self-employed expats (12.4% social security tax and 2.9% Medicare Tax. Expats may also have to pay social security taxes in the country where they live though.

The Foreign Earned Income Exclusion – The FEIE is the most common and broadest aid to prevent double-taxation. You qualify if you live and work overseas and pass either the Bona Fide Residency test or the Physical Presence Test. If you qualify, you can exclude up to $108,700 for tax year 2021, and $112,000 for 2022.

If you meet the requirements and willfully fail to file an FBAR you can be fined up to the greater of $124,588 or 50% of the total balance in all your overseas accounts. If you meet the requirements and fail to file FATCA Form 8938 you can be fined from $10,000 up to $50,000 if you don't act timely.