US Expat Tax CPA for Americans Living in Italy
Living in Italy does not end your US tax obligations. As a US citizen or green card holder, you continue to file a US tax return and report your worldwide income even after moving abroad.
But filing a US return from Italy can involve much more than simply reporting your Italian income.
Italy has its own tax system, foreign asset reporting, wealth taxes on foreign assets, Social Security system, and special tax regimes such as forfettario, the impatriati regime and the 7% regime for retirees. The way those rules interact with the US tax system can significantly affect your US return.
Egan Tax works with Americans living in Italy, and Americans planning a move there, on the US side of their international tax situation.
I work directly with clients on issues including the Foreign Tax Credit, Foreign Earned Income Exclusion, self employment tax and the totalization agreement, FBAR, Form 8938, PFICs, retirement accounts, US real estate, state tax residency, and other US international tax matters.
When an issue depends on Italian law, I coordinate with your Italian commercialista rather than trying to replace them.
Who This Page Is For
Egan Tax works with Americans in Italy including:
Americans planning a move to Italy who want the US side reviewed before becoming Italian tax residents
US citizens working in Italy as freelancers or contractors with a partita IVA
Americans using or considering the forfettario or impatriati regimes
Americans working remotely for US or foreign companies
Retirees living in Italy with US pensions, IRAs, 401(k)s and Social Security
Dual US and Italian citizens with income or property in both countries
Americans who continue to own a home or investments in the United States
Americans who have missed US tax returns or foreign account reporting
The US Tax Issues Americans in Italy Need to Understand
Self Employment and the Totalization Agreement
This is the issue most often missed.
The United States and Italy have a Social Security totalization agreement designed to prevent workers from paying into both systems on the same earnings.
Under most totalization agreements, a self employed person pays into the system of the country where they live. The US Italy agreement works differently. A US citizen who is self employed in Italy generally remains covered by US Social Security and pays US self employment tax rather than Italian INPS contributions. If you are also an Italian citizen, the rules are different and you may have a choice.
This matters because INPS contributions for a freelancer can be substantially higher than the 15.3% US self employment tax, and many commercialisti enroll self employed clients in INPS by default.
To rely on the agreement in Italy, you need a certificate of coverage from the US Social Security Administration.
The Foreign Earned Income Exclusion does not reduce US self employment tax. The question is which system you pay into, not whether you pay.
Foreign Tax Credit vs. Foreign Earned Income Exclusion
Americans living in Italy can use the Foreign Tax Credit, the Foreign Earned Income Exclusion, or in some situations both for different types of income.
The right choice depends on how Italy taxes you.
For someone taxed under the ordinary Italian rules, Italian income tax is often higher than US federal income tax on the same earnings. In those situations, the Foreign Tax Credit eliminates the US tax on those earnings, builds credits you can carry forward, and keeps your earnings eligible for IRA contributions and the refundable child tax credit.
The calculation is very different under forfettario or the impatriati regime, where Italian tax on your earnings can be well below the US tax on the same income.
The maximum Foreign Earned Income Exclusion for 2026 is $132,900. If you claim it and later revoke it, you cannot claim it again for five years without IRS consent. Because Italian regimes change over time, that sequence is worth planning.
I calculate the return both ways and look beyond the current tax year before recommending an approach.
Italy Taxes Worldwide Income and Foreign Assets
Once you become an Italian tax resident, Italy generally taxes your worldwide income.
Italy generally treats you as resident for the entire calendar year if you meet its residency tests for more than half the year. Arrival timing can therefore matter, which is why a January start date is common advice.
Italian residents also report assets held outside Italy on their Italian return. From Italy's point of view, that can include:
- US bank and investment accounts
- US real estate
- US retirement accounts
- Other foreign financial assets
Italy also has two annual taxes on those assets: IVAFE on foreign financial assets and IVIE on foreign real estate.
IVIE and IVAFE are taxes on the value of assets rather than on income, so they are not creditable on your US return.
US Funds in Italy and Italian Funds in the US
For US tax purposes, Italian and other European mutual funds and ETFs are treated as Passive Foreign Investment Companies (PFICs).
PFICs are reported on Form 8621. Without an election, gains and certain distributions are taxed at the highest ordinary rate plus an interest charge.
The problem also runs in the other direction. Italy can tax income and gains from US mutual funds and ETFs that are not EU harmonized less favorably than other investment income. Your commercialista or financial advisor should confirm the Italian treatment.
There is rarely a fund that both countries treat well.
Before you move, and before investing in an Italian or European fund, it is worth understanding the consequences in both countries.
FBAR and Form 8938
Your Italian bank and investment accounts are foreign accounts for US reporting purposes.
The FBAR applies when the combined maximum value of your foreign financial accounts exceeds $10,000 at any point during the year.
Form 8938 applies at higher thresholds. For taxpayers living abroad, it is required when specified foreign financial assets exceed $200,000 at year end or $300,000 at any time for unmarried taxpayers, and $400,000 at year end or $600,000 at any time for married taxpayers filing jointly.
Neither form is itself a tax. But failing to file required international information returns can result in significant penalties.
Egan Tax handles FBAR and Form 8938 reporting for Americans living in Italy.
Forfettario, Impatriati and the 7% Regime: What Americans Need to Know
These are Italian regimes. Your commercialista determines whether you qualify and handles the Italian side.
From the US tax perspective, none of them eliminates your US tax filing obligations. You remain subject to US taxation on your worldwide income.
Forfettario
Forfettario is a flat substitute tax for small businesses and freelancers under a revenue cap. Under current Italian rules the rate is 5% for the first five years of a new activity and 15% after that, applied to a fixed percentage of revenue.
For US purposes you are a self employed individual reporting on Schedule C. Your actual business expenses are deductible on the US return even though Italy does not use them.
Because the Italian tax is low, the Foreign Tax Credit alone often does not cover the US tax, which is why the exclusion and the Social Security question above carry so much weight.
Impatriati
The impatriati regime can exempt part of the Italian employment or self employment income of qualifying new residents for up to five years. It generally cannot be combined with forfettario.
For US purposes your full income remains reportable. The exempt portion generates no Italian tax and therefore no Foreign Tax Credit.
The 7% Regime for Retirees
Italy offers a flat 7% tax on foreign source income for qualifying pensioners who move to certain small municipalities in southern Italy.
The US continues to tax US pensions, IRA and 401(k) distributions and Social Security under its normal rules. How the US Italy tax treaty and the Foreign Tax Credit apply can differ by type of income and by citizenship.
If you are choosing between Italian regimes, it is worth looking at the US and Italian consequences together before making the decision.
Your US Home, Accounts and Investments
Keeping or Selling a US Home
Rental income from US property remains subject to US federal tax, and the state where the property is located will usually require a nonresident return. Italy may also tax the rental income once you become an Italian tax resident, with foreign tax credits potentially reducing double taxation. The home can also be subject to IVIE.
If you plan to sell, the Section 121 exclusion of $250,000, or $500,000 for a married couple filing jointly, is available only if you meet the ownership and use tests at the time of sale. Italy has its own rules on real estate gains.
Whether you sell before or after becoming an Italian resident can produce very different results.
US Brokerage and Retirement Accounts
Moving to Italy does not end US tax on your US investments.
Some US brokerages restrict or close accounts for customers who become Italian residents. That is the institution's compliance decision rather than a tax rule, but it is better handled before it becomes urgent.
Traditional IRAs and 401(k)s keep their US deferral. How Italy treats distributions, and how it treats a Roth, should be reviewed with your commercialista before you take money out.
Before You Move to Italy
Much of the planning value is in the months before Italian residency begins.
- Choose your residency start date deliberately, since Italy generally has no split year
- Review US mutual funds and ETFs before you become subject to Italian tax on them
- Decide whether to sell, rent or hold US real estate
- Request the Social Security certificate of coverage early if you will be self employed
- Address US state residency, since moving abroad does not automatically end residency or domicile in every state
- Decide who prepares your US return, since it will now include foreign income, foreign tax credits or exclusions, and foreign account reporting
What Egan Tax Handles for Americans in Italy
Egan Tax provides US tax preparation and international tax support for Americans living in Italy, including:
- Form 1040 and Foreign Tax Credit reporting
- Form 2555 and Foreign Earned Income Exclusion
- FEIE vs. Foreign Tax Credit modeling, including forfettario and impatriati scenarios
- Schedule C and self employment tax for partita IVA holders
- Totalization agreement and certificate of coverage issues
- FBAR / FinCEN Form 114
- Form 8938
- Form 8621 and PFIC reporting
- Form 5471 for ownership of an Italian SRL
- US rental property and state nonresident returns
- Planning before the move: residency start date, portfolio, US real estate and state residency
- Streamlined Filing Compliance Procedures
- Other international information returns
- Coordination with your Italian commercialista
Frequently Asked Questions
Do I still have to file a US tax return if I live in Italy?
Yes. US citizens and green card holders continue to file US tax returns on their worldwide income even when living permanently in Italy.
The Foreign Tax Credit or Foreign Earned Income Exclusion may reduce or eliminate US federal income tax, but they do not eliminate the filing requirement.
I freelance in Italy. Do I pay Social Security in Italy or the US?
If you are a US citizen and not an Italian citizen, the US. The totalization agreement generally keeps self employed US citizens in the US system, and a certificate of coverage from the Social Security Administration is the documentation INPS looks for.
Dual citizens may have a choice.
Should I use the Foreign Tax Credit or Foreign Earned Income Exclusion?
If you pay ordinary Italian income tax, usually the Foreign Tax Credit. If you are under forfettario or the impatriati regime, the exclusion often works better because the Italian tax is too low to cover the US tax.
I calculate both and consider the longer term consequences, because revoking the exclusion bars you from claiming it again for five years.
Can I use forfettario and impatriati together?
No, you choose one. Your commercialista determines which is better on the Italian side.
The US consequences of each should be considered before making the choice, so the decision is based on the combined result.
Can I deduct business expenses on my US return if forfettario does not allow them?
Yes. The US return follows US rules, so your ordinary and necessary business expenses are deductible on Schedule C regardless of how Italy calculates your tax.
I work remotely from Italy for a US company. Is my salary foreign income?
Yes. Wages are sourced where the services are physically performed. If you do the work while physically in Italy, the wages are foreign earned income for US tax purposes even if your employer is a US company and pays you into a US bank account.
Your employer may also have Italian payroll obligations.
Are IVIE and IVAFE creditable on my US return?
No. They are taxes on the value of assets and not on income, so they do not qualify for the Foreign Tax Credit.
Can I keep my US ETFs after moving to Italy?
You can, but Italy may tax US funds that are not EU harmonized less favorably than other investments. Buying Italian or European funds instead can create a PFIC problem on the US side.
It is worth reviewing the portfolio before you move.
Should I keep my current US accountant after I move?
Only if they regularly prepare returns for Americans abroad. After the move, your return includes Form 2555 or Form 1116, the FBAR, and possibly Form 8938 and Form 8621.
What happens if I have not filed my US returns since moving to Italy?
Most Americans abroad who fell behind without realizing they had to file can use the Streamlined Foreign Offshore Procedures.
The program involves three years of US tax returns and six years of FBARs, with no penalties for qualifying taxpayers.
Eligibility depends on your circumstances, so do not assume you qualify without reviewing your situation.
Related US International Tax Resources
Work Directly With Bill Egan, CPA
International tax is the focus of Egan Tax.
Clients work directly with Bill Egan, CPA on their US expatriate and international tax matters.
AICPA U.S. International Tax Certificate
If you are an American living in Italy, or planning a move there, and need help understanding your US tax obligations, schedule a consultation with Egan Tax.
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