There are an estimated 169,000 Americans living in Italy.
Living in Italy is an incredible experience for a multitude of reasons: the history, the culture, the cuisine, the wine, the architecture, and the countryside to name but a few. As an American expatriate living in Italy though, what exactly do you need to know regarding filing US expat (and Italian) taxes?
The good news is if you already pay income tax in Italy, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn more than US$10,000 (or $400 for self-employed individuals), you should file form 1040. While taxes owed are still due by April 15th, expats get an automatic filing extension until June 15th. This can be extended still further online until October 15th.
"Italy’s tax authorities have targeted Italian companies and multinationals operating locally for evading taxes, especially those using holding companies based in other countries, such as Luxembourg and Ireland, as they seek to repair public finances hit by a weak economy."
- (The Wall Street Journal).
If you have foreign assets worth more than US$200,000 (per person), excluding a home owned in your own name, you should also file a form 8938 declaring them.
If you had more than US$10,000 in total in one or more foreign bank accounts at any time during the tax year, you should also file FinCEN form 114, otherwise known as an FBAR (Foreign Bank Account Report).
The US and Italian governments share taxpayer info, while Italian banks pass on their US account holders' account info to the IRS, so it's not worth being economical with the truth or burying your head in the sand. The penalties for tax evasion for expats are tough to say the least.
If you're a US citizen, green card holder, or dual citizen and you have lived in Italy for some time but haven't been filing US taxes, don't fear: there's a program called the IRS Streamlined Procedure that allows you to catch up on your filing without facing any penalties. It's better to do this soon though, before the IRS comes to you.
If you spend at least 183 days of the year in Italy, you are considered an Italian resident for tax purposes. If you work in Italy, your income will be taxed at source, and if this is your only income you don't need to file a return. If you have other income though, you should file a return between 1st May and 30th June following the end of the tax year, with 40% of any tax that you owe payable by 31st May, and the rest by 30th November. If you have any assets outside Italy, you must also file a monitoring return, though these assets aren't currently taxed. Italian penalties are harsh for late filing and payment. The Italian equivalent of the IRS is called the Agenzia delle Entrate.
Income tax rates are currently:
- From €0 to €15,000 - 23%
- From €15,000 to €28,000 - 27%
- From €28,000 to €55,000 - 38%
- From €55,000 to €75,000 - 41%
- From €75,000 up – 43%
There are also regional and municipal income taxes.
Charitable contributions, family allowances, social security contributions, alimony, 19% of medical expenses over €129, 19% of interest paid for loans for real estate (principal residence only, limited to €4000), and 19% of secondary tuition expenses are all deductible.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in Italy, that you contact an expat tax specialist.
At Bright!Tax, we have clients in over 150 countries worldwide. US expat tax is all we do and we are very good at it. If you have any questions regarding your personal situation, don't hesitate to contact us and we'll be happy to help.