# Retiree expat taxes in italy



## Shaka

I know there are several threads about taxes but I haven't found my answer among them.
As far as I know as an retired US citizen living in Italy I will pay taxes to the US and Italy but can benefit from exemptions on taxes paid in the USA. Can someone clarify the tax situation in this scenario?
Tax free allowance for a retired married couple is approx $20,000, on next $17,000 or so tax is due at 10% by USA standards. So does the Italian tax requirements mean that tax is due on income over the tax free allowance in this case over and above $20,000 or so and is the tax rate the difference between 10% already paid and whatever Italys' tax rate is.
Also could someone clarify whether tax is due on incomes from 401k ,pensions ,IRA in Italy,I read that social security is not taxable in Italy. We will not be working or earning any income in Italy so does anyone know how much money you are required to prove that you have in order to obtain residency?

Thank you


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## accbgb

Do you have Italian or other EU citizenship? Or, will you be living in Italy under an Elective Residency visa?


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## Shaka

We also have EU citizenship as we were born and lived in Ireland prior to going to the USA


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## BBCWatcher

Yes, my understanding also is that non-Italian citizens resident in Italy who are receiving U.S. Social Security benefits only pay U.S. tax on those benefits. At least some of the U.S. tax advantaged retirement savings accounts are only taxed by the U.S. as well. That'll all be per the U.S.-Italy tax treaty.

Otherwise, the basic, general, slightly oversimplified rule is that you'll pay tax first to the country that's the source of the income, and you'll get a foreign tax credit for that amount to credit in the other country's tax system. (But you can't "ping pong.") If the tax rate on that income is higher in the other country, you'll pay the difference to that country.

Italy also has a pair of wealth taxes on foreign assets, and like the U.S. it requires disclosure of foreign assets, although their Form RW requires more information.

That's a quick summary. Any follow up questions?


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## NickZ

No.

Social Security Agreement | Italy - United States Diplomatic Mission

If you're resident in Italy you pay in Italy.

The Italian tax free allowance depends on age. I think it used to start at about €7K per senior. Going up for older seniors. Some of that gets clawed back with higher income levels. You'll that pay according to the normal Italian rates.


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## BBCWatcher

You said "No" but linked to a page that confirms what I wrote. The "dual citizen" part refers to dual citizens of Italy and the United States, not to dual citizens of Ireland and the United States, so that might be the source of confusion.


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## NickZ

Read the link again.

An US citizen files in Italy (reports). They also file in the US. They get a tax credit in the US on Italian taxes paid . You'll note no credit provide by Italy for US taxes paid. Italy gets first bite.


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## BBCWatcher

OK, thanks for the correction. I'm reading what I wrote upthread and don't know why I wrote it. I actually knew this but didn't write it up correctly. Thanks for catching that.

Yes, if you're a U.S. citizen who is not also an Italian citizen, and if you are a resident of Italy, per the U.S.-Italy tax treaty you:

(a) Pay Italian income tax on your U.S. Social Security benefit first;
(b) Take that Italian income tax and apply it as a Foreign Tax Credit on your U.S. tax return (IRS Form 1116) if there is any U.S. income tax owed on that Social Security benefit.

Again, thanks for that catch -- great catch. I'll reset those brain cells now. 

The general characterization I wrote upthread appears to be correct. U.S. Social Security benefits are a treaty exception, the treaty overrides the general approach.


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## accbgb

Just curious: since they are also citizens of Ireland, will there be any tax liability there as well?


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## Bevdeforges

Generally speaking, the European countries don't tax based on citizenship. There are some details to attend to - like in the UK, there is a formal "notification process" for letting the tax authority know that you are moving abroad. The other big exception is for income sourced in the home state. If the OP has Irish sourced income (say, a pension from having worked in Ireland, or investments in Ireland), that could be subject to Irish taxes - probably on a non-resident basis.
Cheers,
Bev


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## Shaka

Thanks so much to all of you for your advice and expertise. This forum is a terrific resource. So just to clarify.....we will pay taxes in Italy first on Soc Sec payments from the USA and then forward tax credits if applicable to the USA taxes. IN relation to these Wealth taxes ....do they just affect taxable accounts or are 401k and IRAs affected also.
IF so is the wealth tax based on totals invested or just the distributions as they are taxed deferred accounts. I understand this might be for an accountant on the ground in Italy but our accountant here in the USA doesn't have any answers and we need some information going forward. Thanks again.


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## Bevdeforges

I don't know about the Italian wealth tax, however here in France where there is a wealth tax, there are some rules that permit you to exclude the value of certain types of "retirement accounts" when they meet the local requirements. It's the sort of thing the local accountants may or may not be aware of (due to their lack of familiarity with US based retirement accounts), but it's certainly worth asking the question.
Cheers,
Bev


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## Mrtcpip

BBCWatcher said:


> Yes, if you're a U.S. citizen who is not also an Italian citizen, and if you are a resident of Italy, per the U.S.-Italy tax treaty you:
> 
> (a) Pay Italian income tax on your U.S. Social Security benefit first;
> (b) Take that Italian income tax and apply it as a Foreign Tax Credit on your U.S. tax return (IRS Form 1116) if there is any U.S. income tax owed on that Social Security benefit.
> 
> Again, thanks for that catch -- great catch. I'll reset those brain cells now.
> 
> The general characterization I wrote upthread appears to be correct. U.S. Social Security benefits are a treaty exception, the treaty overrides the general approach.


Hi everyone, this is very helpful. We just went to an Italian tax prep person and they said we have to pay 26% of all interest income from our US based investments. I hope we understand this correctly, could you please comment if we are missing something?

We must file our Italian taxes, (form RW) and they will tax our investments at 26%. 

Next we will take that Italian tax amount and request a credit on our 2015 US taxes. (We had applied for an extension) 

Q. What if the Italian tax fee exceeds the US tax liability? Is the credit able to be carried forward? What happens to it eventually if we return to the US in the future?

Thank you in advance! :juggle:


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## BBCWatcher

No, it's the other way around. You pay U.S. income tax first on your U.S. source interest income, _then_ pay Italian income tax (if any), taking a foreign tax credit on the Italian side. The U.S.-Italy tax treaty could override that approach for certain U.S. tax-advantaged accounts (i.e. make them Italian tax free). IVAFE (Italy's wealth tax on foreign financial assets) may apply.

Italy has a new "Internationalization Decree" which came into effect for 2015. This decree makes it much easier to take and to benefit from foreign tax credits that you are qualified to take.


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## accbgb

Shaka said:


> I know there are several threads about taxes but I haven't found my answer among them.
> As far as I know as an retired US citizen living in Italy I will pay taxes to the US and Italy but can benefit from exemptions on taxes paid in the USA. Can someone clarify the tax situation in this scenario?
> _*Tax free allowance for a retired married couple*_ is approx $20,000, on next $17,000 or so tax is due at 10% by USA standards. So does the Italian tax requirements mean that tax is due on income over the tax free allowance in this case over and above $20,000 or so and is the tax rate the difference between 10% already paid and whatever Italys' tax rate is.
> Also could someone clarify whether tax is due on incomes from 401k ,pensions ,IRA in Italy,I read that social security is not taxable in Italy. We will not be working or earning any income in Italy so does anyone know how much money you are required to prove that you have in order to obtain residency?
> 
> Thank you


I failed to comment on this earlier on thought I would do so now for thread integrity.

Italy does not have the equivalent of the US "Married Filing Jointly" tax return. Taxes for a husband and wife are calculated and paid separately, on separate returns. So, for example, a "couple" whose total income is €30,000 might pay markedly more tax in total if the income is primarily in the husband's name vs. if the income is more evenly distributed between husband and wife.


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## Mrtcpip

BBCWatcher said:


> No, it's the other way around. You pay U.S. income tax first on your U.S. source interest income, _then_ pay Italian income tax (if any), taking a foreign tax credit on the Italian side. The U.S.-Italy tax treaty could override that approach for certain U.S. tax-advantaged accounts (i.e. make them Italian tax free). IVAFE (Italy's wealth tax on foreign financial assets) may apply.
> 
> Italy has a new "Internationalization Decree" which came into effect for 2015. This decree makes it much easier to take and to benefit from foreign tax credits that you are qualified to take.


Sorry, I am a little confused by the previous statement that "Italy takes the first bite.." Does that only refer to taxing US Social security benefits?



NickZ said:


> An US citizen files in Italy (reports). They also file in the US. They get a tax credit in the US on Italian taxes paid . You'll note no credit provide by Italy for US taxes paid. Italy gets first bite.


One other question, when we file the Italian tax, do we take the US tax credit and apply it against the amount due? Or do we pay the entire Italian tax amount and take a credit the following year?

Also, since we have filed an extension on the US taxes, will we be able to wait until September to complete the Italian tax filing? 

I guess I better read the treaty between US and Italy, as well as the internationalization decree. Does anyone know where I can find these? 

Thank you


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## Bevdeforges

You can find the tax treaties and the social security treaties on the IRS website. The only "gotcha" is that on the IRS site, they seem to offer each treaty, protocol and "technical explanation" separately. Up to you to pull them all together. (The protocols tend to be things like, "paragraph X of the treaty is replaced by the following:....")

Basically, the documents should say what items are taxed by which country - however they don't include any detail about how to report the items on the tax returns for the "other" country so that you don't get double taxed. What you might want to do is to find a US expat organization (club or association) and see if they have information on taxation available for members that is a bit more "nitty gritty."
Cheers,
Bev


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## BBCWatcher

Mrtcpip said:


> Also, since we have filed an extension on the US taxes, will we be able to wait until September to complete the Italian tax filing?


I'll answer this part: no. Italy has its own tax filing deadlines, decided for itself. The fact you got a filing extension from Zimbabwe (as another example, or from wherever) doesn't matter to Italy.

However, the new Internationalization Decree makes it easier to coordinate foreign tax credits, usually within the same tax years instead of carrying them forward/backward (and overpaying/refunding), as in the past.

I'll reiterate what I wrote previously. For U.S. source interest income, _unless the tax treaty says otherwise_ (which it might for a U.S. tax-advantaged account), you pay the U.S. first, then take a foreign tax credit in Italy and pay Italy any remaining income tax plus (probably, unless the tax treaty says otherwise) IVAFE. (IVAFE is a wealth tax, not an income tax. But it's part of the Italian tax regime, too.)


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## BBCWatcher

Mrtcpip said:


> Sorry, I am a little confused by the previous statement that "Italy takes the first bite.." Does that only refer to taxing US Social security benefits?


Yes, it refers to the particular U.S. Social Security income scenario described above, a tax treaty-defined exception.

When the tax treaty is silent (as it usually is), or when there is no tax treaty, the general rule is to pay tax in the source country on that piece of income first _then_ take a foreign tax credit in your country of tax residence and pay any remaining tax(es) there. (U.S. citizens are always "tax resident" in the United States, please note. And it is possible more generally to be a tax resident of two or more jurisdictions.)


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## Mrtcpip

Bevdeforges said:


> You can find the tax treaties and the social security treaties on the IRS website. The only "gotcha" is that on the IRS site, they seem to offer each treaty, protocol and "technical explanation" separately. Up to you to pull them all together. (The protocols tend to be things like, "paragraph X of the treaty is replaced by the following:....")
> 
> Basically, the documents should say what items are taxed by which country - however they don't include any detail about how to report the items on the tax returns for the "other" country so that you don't get double taxed. What you might want to do is to find a US expat organization (club or association) and see if they have information on taxation available for members that is a bit more "nitty gritty."
> Cheers,
> Bev


Thank you Bevdeforges! We have been reading both the treaty and the explanation. It not easy for me. 

One question, we are trying to figure out if Italy is going to work for us much longer, and as part of that we need to estimate the tax credit that the US will allow against the 26% Italian tax levy on worldwide income. (I assume no tax credit for IVAFE) Am I correct in understanding, I read in the Treaty that only Federal will be allowed, and not State. So for example; if on our US federal return we pay an effective rate of 15% and Italy charges 26% on interest, dividends and capital gain, is it as simple as paying the difference? 11%? 

Is it wishful thinking to have Italy provide a Tax credit for Federal and State tax payments made to the US?

We are trying to estimate what our total net tax will be. 

Thank you in advance! lane:


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## NickZ

Italy will give you a tax credit IF the other country is the one that is supposed to be taxing you.

I don't know how the US treats US citizens when it comes to investment income. Non Americans file a W8Ben form and the IRS gets 15%. You get a credit for that. 

If you're facing the same federal tax situation then you should get a credit. 

I don't think you should be paying state tax in the US. Why would you?


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## Bevdeforges

Mrtcpip said:


> Is it wishful thinking to have Italy provide a Tax credit for Federal and State tax payments made to the US?
> 
> We are trying to estimate what our total net tax will be.
> 
> Thank you in advance! lane:


If you are resident in Italy (which I gather you are), then the bank or investment house seems to withhold the Italian taxes for you. As a US citizen, you declare your worldwide income and claim the FTC (Foreign Tax Credit) for the taxes paid to Italy against whatever taxes you rack up to the US (i.e. IRS, i.e. Federal income tax).

As NickZ mentions, you shouldn't be subject to US State taxes if you're resident in Italy. But in any event, State income taxes don't figure into Italian income tax calculations.

I don't know how Italy's tax laws work, but generally speaking, under most tax treaties, you pay the "first cut" on income taxes to the country in which you are "tax resident." And then you adjust for any specific types of income mentioned in the treaty using the methods outlined in the tax treaty.

As non-citizens, I suspect that you will have to provide your bank with a W-9 form (i.e. giving them your US SS number) but from that point on, it's the bank that withholds the appropriate taxes (i.e. the 26%) and up to you to claim that back from the US government, using form 1116. You can roll over the excess foreign tax paid to apply against any other "passive" income from foreign sources you might have. But that's about it. 
Cheers,
Bev


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## Mrtcpip

Bevdeforges said:


> If you are resident in Italy (which I gather you are), then the bank or investment house seems to withhold the Italian taxes for you. As a US citizen, you declare your worldwide income and claim the FTC (Foreign Tax Credit) for the taxes paid to Italy against whatever taxes you rack up to the US (i.e. IRS, i.e. Federal income tax).
> 
> As NickZ mentions, you shouldn't be subject to US State taxes if you're resident in Italy. But in any event, State income taxes don't figure into Italian income tax calculations.
> 
> I don't know how Italy's tax laws work, but generally speaking, under most tax treaties, you pay the "first cut" on income taxes to the country in which you are "tax resident." And then you adjust for any specific types of income mentioned in the treaty using the methods outlined in the tax treaty.
> 
> As non-citizens, I suspect that you will have to provide your bank with a W-9 form (i.e. giving them your US SS number) but from that point on, it's the bank that withholds the appropriate taxes (i.e. the 26%) and up to you to claim that back from the US government, using form 1116. You can roll over the excess foreign tax paid to apply against any other "passive" income from foreign sources you might have. But that's about it.
> Cheers,
> Bev


THank you Bev and Nick!


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## John98103

To clarify - 

I've been told by people in Spain during a very recent visit that as a US retired person, Spain will tax me on my worldwide income - including capital gains, pension, social security, 401K distributions, etc., regardless of tax paid to the US IRS. Spain capital gains tax is 20%, so on my US house sale of $1,000,000 net = $200,000 tax. 
Have also been told that France only taxes on income earned in France - does Italy follow Spain or France? 

Thanks


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## NickZ

First some corrections.

Spain should give you credit for taxes paid in the US. So would Italy. In other words deduct US taxes paid.

Capital gains is on the capital gain not on the sale price. Nothing stops you selling it before you move but Italy doesn't tax homes if owned for more than I ***THINK*** five years.

I'd be very surprised if France didn't tax on worldwide income


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## Bevdeforges

John98103 said:


> To clarify -
> 
> I've been told by people in Spain during a very recent visit that as a US retired person, Spain will tax me on my worldwide income - including capital gains, pension, social security, 401K distributions, etc., regardless of tax paid to the US IRS. Spain capital gains tax is 20%, so on my US house sale of $1,000,000 net = $200,000 tax.
> Have also been told that France only taxes on income earned in France - does Italy follow Spain or France?
> 
> Thanks


How you are taxed as a US citizen depends on the tax treaty between the US and your country of residence. Most countries in Europe will require that you declare all your worldwide income and then will apply various tax credits or exemptions against sources of income that may be double taxed. In some cases, the US taxes US Social Security, while in others, Social Security payments are taxed by the country of residence.

I'm not sure how Spain works, but you should take a look at IRS publication 915 https://www.irs.gov/forms-pubs/about-publication-915
For Italy, Social Security is exempt from US taxes but only if you are also an Italian citizen. There should be more details in the publication. How you get any credit or exemption from the Italian tax services should be explained somewhere in the US-Italy tax treaty.



> Have also been told that France only taxes on income earned in France


That's not literally true. In France you declare your worldwide income and then apply a tax credit to US SS benefits (including withdrawals from IRAs and 401Ks). The tax credit has nothing to do with taxes paid to the US.
Cheers,
Bev


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## PauloPievese

NickZ said:


> Social Security Agreement | Italy - United States Diplomatic Mission


This is apparently a link to an invalid URL. Nick, could you check it and re-post? Thanks.


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## PauloPievese

PauloPievese said:


> This is apparently a link to an invalid URL. Nick, could you check it and re-post? Thanks.


Well, Google is your friend. On the first link search for "Social Security Agreement"

https://it.usembassy.gov/u-s-citizen-services/irs/

https://www.ssa.gov/international/

https://www.ssa.gov/international/Agreement_Texts/italy.html

https://www.ssa.gov/international/Agreement_Pamphlets/italy.html​
As for me, I'm sticking with what the accountants told me in https://www.expatforum.com/expats/i...n-income-taxes-u-s-retirees.html#post14271066 because I'm in so deep that if that isn't true I might as well commit hara-kiri.
:flypig:


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## GeordieBorn

I have no real interest or specific advice, but if you search DTA (double taxation agreement) , name of country 1 and 2 it normally comes up with it... e.g. "DTA Italy USA" . have to admit I don't use google any longer 'cos they have become total rubbish... But duckduckgo comes up with lots of info. Those interested can get back on how good it is... 
I think some worry far too much on the detail (Paulo) and need to think on it


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