US TAX COMPLIANCE WHEN IN ITALY
Worldwide Income. The United States of America taxes its CITIZENS and resident aliens (green card holders) on their worldwide income regardless of their location or source of income. The rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad.
Italy taxes its RESIDENTS on their worldwide income regardless of the source of income. If you are a permanent resident of Italy, you are subject to two tax jurisdiction: USA and Italy.
Who Must File? You generally need to file an individual income tax return (Form 1040) with the Internal Revenue Service (IRS) if your gross income is over:
- Single: $12,000
- Married filing jointly: Qualifying widow(er) $24,000
- Married filing separately: $5 (not a typo)
- Head of household: $18,000
(The amounts are higher if you or your spouse are over age 60)
- Self-employed: $400
- You sold your home during the tax year;
- US taxes were withheld at source for any reason.
Double taxation is generally avoided thanks to the Foreign Earned Income Exclusion and/or Foreign Tax Credit, and various other US-Italy Tax Treaty Provisions.
When to File. You have an automatic extension until mid June to file and pay any amount due. You can ask for an additional extension until mid October. Interest is due on any amount unpaid calculated from mid April.
FBAR/FATCA. You need to file a 'Foreign Bank Account Report' (FBAR) with the Financial Crimes Reporting Network (FinCEN) if the aggregate value of your foreign (non-US) financial accounts (bank accounts, brokerage accounts, mutual funds, trusts, etc.) exceeded $10,000 at any time during the tax year. The filing deadline is mid April with automatic extension to mid October.
Additional IRS Reporting. You are subject to additional IRS reporting:
- If you own 10% or more in a foreign corporation or Llc (Srl);
- If you are the beneficiary of a foreign trust;
- If you have a passive participation in a foreign corporation or mutual fund.
Self-Employment Tax. If you are NOT a dual-national, you are required to pay US self-employment tax (aka social security). If you are a dual national, you can choose where to contribute: Italy or the USA (see Totalization Agreement)
Pensions. Pensions (except government service pensions) are taxed only by Italy (see Article 18 of the tax treaty).
Filing Past Due Tax Returns. If you did not know you had to file, and your
omission was not willful, you may be eligible for the Streamlined Foreign Offshore Procedures. These procedures require you to file the last 3 missing individual income tax returns (Form 1040) and six years of FBARs.