Narrow limestone street with flower-filled balconies in a Puglia town, Italy

US Taxes While Living in Puglia: FBAR, FEIE vs Foreign Tax Credit and the Treaty

By Puglia Everyday · Last updated: 22 October 2026

Photo by Andrea Giardini, portfolio on Unsplash

Moving to Puglia does not end your relationship with the IRS. The United States taxes its citizens on their worldwide income wherever they live, so a US citizen who becomes resident in Italy files in two countries every year: an Italian return as a resident, and a US return as a citizen.

This guide sets out both sides in plain terms: what you file with the IRS and FinCEN, how the foreign earned income exclusion and the foreign tax credit differ, what the US-Italy treaty does and does not change, and the Italian forms that US-focused advisers often skip. This is a general guide, not tax advice. Every rule below links to the official page, and for your own figures you need a commercialista (an Italian chartered accountant) and, ideally, a US preparer who works with Italy.

The short version

United StatesItaly
Who filesEvery US citizen above the filing threshold, wherever they liveTax residents (most of the year here, see below)
What is taxedWorldwide incomeWorldwide income
Main returnForm 1040, due 15 April; automatic extension to 15 June if you live abroadModello Redditi PF, filed online between 15 April and 31 October
Foreign accountsFBAR (FinCEN 114) above $10,000 combined; Form 8938 above higher thresholdsQuadro RW (foreign assets section) of the Italian return
Wealth-style taxesNone on accountsIVAFE on foreign accounts and investments; IVIE on foreign property
Double tax reliefForeign tax credit (Form 1116) or the earned income exclusion (Form 2555)Credit for foreign tax paid, limited by the treaty for US citizens

When you become an Italian tax resident

Since 1 January 2024, you are tax resident in Italy if, for most of the tax year (183 days, or 184 in a leap year), you meet any one of four tests: you are registered at the anagrafe (the town hall’s population register), you have your domicilio here (the place where your main personal and family relationships are), you have your habitual residence here, or you are simply physically present, with part days counting. The Agenzia delle Entrate sets out the four tests in English. Registration at the anagrafe is now a presumption you can rebut with evidence, not an automatic rule.

Both countries use the calendar year, which keeps things simpler than in the UK. If you arrive in the autumn, you will usually not be resident for that first year, because you will not reach the 183 days; plan the move date with your adviser, since it decides which year your Italian obligations start. If you are still working out the order of visa, permit and residence, our step-by-step guide to moving to Puglia shows where tax residence fits.

What you still file with the IRS

The IRS page for citizens abroad is direct about it: the filing rules are generally the same whether you live in the US or overseas, and you are taxed on income from all sources. The tax breaks for people abroad, the exclusion and the credit below, only apply if you file a return that claims them. The full rulebook is Publication 54, the IRS tax guide for citizens abroad.

Deadlines shift slightly for people living outside the US. Your return is still due on 15 April, but if you live abroad on that date you get an automatic two-month extension to file, to 15 June, without asking. You can then request a further extension to 15 October by filing Form 4868 before 15 June. Interest still runs on any tax not paid by 15 April, so the extension is for paperwork, not for payment.

The FBAR: every account, not just the big ones

The FBAR, FinCEN Form 114, is separate from your tax return and goes to the Treasury’s Financial Crimes Enforcement Network. You must file it if the combined value of all your foreign financial accounts went over $10,000 at any time during the year, according to the IRS FBAR page. That is the combined total, not each account, and the highest balance, not the year-end one. An Italian current account, a savings account and a libretto postale (a Poste Italiane savings book) all count, whether or not they earn interest.

The FBAR is due on 15 April, with an automatic extension to 15 October that you do not need to request. It is filed only online, through the BSA E-Filing System. Keep a record of each account (name on the account, number, bank name and address, type and maximum value) for five years. In practice, the month your new Italian salary or pension starts landing, the $10,000 line is usually crossed without anyone noticing.

Form 8938 (FATCA): a second list with higher thresholds

Form 8938, the FATCA statement of specified foreign financial assets, is attached to your tax return and overlaps with the FBAR without replacing it. For people living abroad, the IRS FATCA summary sets these thresholds:

  • Single, or married filing separately: more than $200,000 on the last day of the year, or more than $300,000 at any time during the year.
  • Married filing jointly: more than $400,000 on the last day of the year, or more than $600,000 at any time.

You count as living abroad for these thresholds if your tax home is in a foreign country and you were present abroad for at least 330 days in a 12-month period. FATCA is also why an Italian bank will ask about your citizenship when you open an account, and why some banks are more cautious with US clients. Our guide to opening an Italian bank account covers the Italian side of that conversation.

The FEIE or the foreign tax credit

These are the two main ways to avoid paying full tax twice on the same income. You can use one, the other, or a mix on different income, but not both on the same dollars. For most people who live in Puglia, the choice comes down to what kind of income they have and how much Italian tax they pay on it.

The foreign earned income exclusion (FEIE)

The FEIE lets you leave foreign earned income out of your US taxable income, up to $132,900 per person for 2026 ($130,000 for 2025), according to the IRS figures. You claim it on Form 2555. To qualify, your tax home must be abroad and you must either be a bona fide resident of another country for a full tax year, or be physically present abroad for at least 330 full days in any 12 consecutive months.

Two limits matter in Puglia. First, the exclusion only covers earned income: wages, salaries and self-employment income. The IRS states that pensions, annuities and Social Security benefits are not foreign earned income, and neither are interest, dividends or rental income, so the FEIE does little for a retiree. Second, if you are self-employed, the exclusion reduces your income tax but not your US self-employment tax.

The foreign tax credit (FTC)

The foreign tax credit reduces your US tax by the foreign income tax you paid on the same income, claimed on Form 1116. Italian IRPEF (the national income tax) qualifies as an income tax. The IRS adds a rule that trips people up: you cannot take a credit for tax on income you have already excluded under the FEIE.

Italian rates are not low. From 2026, IRPEF is 23% up to €28,000, 33% from €28,000 to €50,000 and 43% above €50,000, according to the Agenzia delle Entrate, plus regional and municipal surcharges. On €40,000 of taxable income, gross IRPEF before deductions comes to €10,400. Because the Italian bill is often as high as or higher than the US bill on the same income, many residents find that the credit leaves them with little US income tax to pay. Your preparer runs both methods and compares.

Which fits which reader

  • Employed or remote-working in Puglia, paying Italian tax: the FTC is often the better fit, because Italian tax is usually high enough to cover the US bill. The FEIE can make sense on income Italy taxes lightly.
  • Retired on a US pension or Social Security: the FEIE does not apply. The FTC and the treaty rules decide where the pension is taxed. If you are looking at the flat 7% regime for pensioners who move to a small southern town, our list of Puglia’s 7% tax towns explains how it works on the Italian side.
  • Self-employed with an Italian partita IVA (VAT number): your US self-employment tax is a separate question from income tax. Our guide to the forfettario flat-rate regime covers the Italian side.
  • Moving for an Italian job: Italy’s lavoratori impatriati scheme can exempt part of your Italian income, which also lowers the Italian tax available as a US credit.

What the US-Italy treaty changes, and what it does not

The US-Italy income tax treaty was signed in 1999 and entered into force on 16 December 2009. Article 1 contains what advisers call the saving clause: each country keeps the right to tax its own residents, and the United States keeps the right to tax its citizens, as if the treaty did not exist, apart from a short list of exceptions. That is why the treaty does not free a US citizen in Puglia from filing a US return.

What the treaty does do is set the order of credits. Paragraph 4 of article 23, on relief from double taxation, has a specific rule for US citizens resident in Italy. On income that the treaty exempts from US tax, or taxes at a reduced US rate, for an ordinary Italian resident (US dividends are the common example), Italy credits US tax only up to the amount the US could charge a non-citizen. The United States then credits the Italian tax that remains. It is the paragraph your preparer will cite when the two returns have to fit together. Pensions and Social Security have their own rules in article 18, so check those separately with your adviser.

Social security contributions on work are a separate matter again. The US and Italy have a totalization agreement that decides which country’s system you pay into, so you do not pay into both on the same work.

The Italian side US guides often skip

Once you are resident, Italy wants to know what you hold outside the country. This goes in the quadro RW, the foreign-assets section of the Modello Redditi PF (Italy’s individual income tax return). According to the Agenzia delle Entrate, it is used both to report foreign assets and to pay two small taxes on them. The section is not needed just to report bank deposits whose combined maximum value stayed at or below €15,000 during the year, but it is needed whenever IVAFE is due.

  • IVAFE (tax on foreign financial assets): a flat €34.20 per year for each foreign current or savings account, not due if the average balance at that bank stayed at or below €5,000; and 0.2% a year on the value of other foreign financial products, such as a US brokerage account.
  • IVIE (tax on foreign property): 1.06% a year from 2024 on the value of a home you own abroad. For property outside the EU, such as a house in the US, the value is generally the purchase cost, or the market value if there is no cost to go by. It is not due if the amount is €200 or less.

So a resident who keeps a US checking account, a US brokerage account and a house in the US has three lines in the quadro RW and two small Italian taxes, even though nothing was sold and no income changed hands. Italy also taxes the income itself: US interest and dividends are taxable here too, and our guide to foreign dividends and double taxation explains how Italy credits tax withheld abroad.

One trap runs the other way. Many non-US funds, including the mutual funds and ETFs sold by Italian banks, can be passive foreign investment companies (PFICs) under US rules, which bring unfavorable US tax treatment and an extra form, Form 8621. The IRS instructions for Form 8621 explain the test. Ask before you let an Italian bank put your savings into its in-house funds.

A calendar that works

Italy’s return for 2025 income, the Redditi PF 2026, is filed online from 15 April. The ordinary deadline is 31 October, which falls on a Saturday this year, so the Agenzia delle Entrate moved it to Monday, 2 November 2026. Most residents file through a commercialista or a CAF (a tax assistance center), and you can check what has been filed for you through Fisconline, the tax agency’s online portal.

  • January to March: collect Italian income statements, the year-end and maximum balances of every account, and US forms such as 1099s.
  • 15 April: US return due if you pay by then; FBAR due. Italian filing window opens.
  • 15 June: extended US filing deadline for people living abroad.
  • 15 October: final US extension (with Form 4868) and FBAR extension.
  • 31 October (2 November in 2026): Italian return due.

Italian word of the day: dichiarazione dei redditi, literally the declaration of income, which is what everyone in Puglia calls the tax return. In October it is the word on every reminder from a commercialista, as the deadline comes into view.

If you have not filed US returns or FBARs since you moved, the IRS runs streamlined filing compliance procedures for people who fell behind without meaning to. They are worth a conversation with a US preparer before the IRS writes to you. More guides on tax regimes, budgets and the cost of living sit in our The Ledger section.

FAQ

Do I have to file US taxes if I live in Italy?

Yes, if your income is above the normal filing threshold. US citizens are taxed on worldwide income wherever they live. Living abroad gives you an automatic extension to 15 June to file, and you can claim the foreign earned income exclusion or the foreign tax credit, but only on a filed return.

Does an Italian bank account count for the FBAR?

Yes. Any account at a bank outside the US counts, including an Italian current account, a savings account or a Poste Italiane libretto. You file if the combined value of all your foreign accounts went over $10,000 at any point in the year.

Is the FEIE or the foreign tax credit better in Italy?

It depends on your income. The FEIE only covers earned income, up to $132,900 for 2026, and not pensions or investment income. Because Italian income tax rates run from 23% to 43%, many residents paying Italian tax on their salary find the foreign tax credit covers most or all of their US income tax. A preparer should run both.

Does the US-Italy treaty stop double taxation for US citizens?

It reduces it but does not remove the US return. The saving clause lets the US keep taxing its citizens, and article 23 sets the order in which each country credits the other’s tax on income such as US dividends.

Do I pay Italian tax on my US bank accounts?

Usually a small one. As an Italian resident you report foreign accounts in the quadro RW and pay IVAFE: €34.20 a year per account if the average balance at that bank is over €5,000, and 0.2% on investment accounts. Interest and dividends are taxed as income as well.

Sources

Rules, thresholds and dates checked on 22 October 2026. This is a general guide, not tax advice. US thresholds change every year; for your own situation, speak to a commercialista and a US tax preparer who works with Italy.

Read More