US taxes for Americans in Italy

Front-loaded answerAs a US citizen in Italy you file two systems: the IRS on worldwide income every year, and Italy once you're a tax resident (183+ days). The US–Italy treaty, the FEIE, and the Foreign Tax Credit keep most Americans from double tax — and foreign retirees can slash the Italian side to a flat 7% by settling in a qualifying southern town.

The 7% flat tax for foreign retirees

This is Italy's headline draw for American retirees. Move your tax residence to a qualifying municipality in the south (Sicily, Calabria, Sardinia, Campania, Puglia, Basilicata, Abruzzo, or Molise) with no more than 30,000 inhabitants — a threshold raised from 20,000 in 2026 — and, if you weren't an Italian tax resident in the prior five years, you can elect a flat 7% substitute tax on all your foreign-source income for ten years.

• ✓Covers all foreign income — pension, dividends, rent, capital gains — not just the pension
• ✓Generally creditable against your US tax under the treaty's Foreign Tax Credit
• ✓It's a regional trade-off: you give up Rome/Milan/Florence for a smaller southern town

Treaty, FEIE, FTC & the standard rates

Without a special regime, Italy taxes residents on worldwide income at progressive IRPEF rates of 23%–43% (plus regional/municipal surcharges). The US–Italy treaty and the Foreign Tax Credit let you credit Italian tax against your US bill; the FEIE separately excludes earned income up to $130,000 (2025) / $132,900 (2026).

• !FEIE covers earned income only — pensions and Social Security rely on the FTC and treaty
• !Higher earners without a special regime can owe both systems, with the FTC easing the overlap
• !Watch PFIC rules on EU funds, and Italy's IVIE/IVAFE taxes on foreign property and financial assets

FBAR & FATCA

Frequently asked

Will I pay tax twice as an American retiree in Italy?

Usually not. The US–Italy treaty and Foreign Tax Credit let you credit Italian tax against your US bill, and many retirees elect Italy's 7% flat regime in a qualifying southern town. You still file a US return every year.