The Short Version
A single American retiree living on $31,000 of Social Security and an $8,400 private pension would pay roughly $10,200 a year in Italian tax living in a regular region such as Tuscany or Lombardy, and about $2,750 living in a town that qualifies for Italy's 7% flat tax for foreign pensioners. That's a difference of about $7,500 a year, or roughly $75,000 over the regime's ten-year life. Add a $1 million Traditional IRA and the gap widens dramatically.
The rest of this page shows exactly how those numbers are built, which rules they rest on, and how confident we are in each one.
The Example Retiree
- Single US citizen, age 65 or older, not an Italian citizen
- US Social Security: $31,000 a year
- Private-employer pension: $8,400 a year
- Total income: $39,400, or about €34,560 at an assumed rate of $1.14 per euro
- No withdrawals from a Traditional or Roth IRA (the second half of this page adds them)
- Tax year 2026 rules in both countries
Who Taxes the Social Security? (Settled)
A common misconception is that the US-Italy tax treaty stops Italy from taxing US Social Security. It does the opposite. Under Article 18 of the treaty and its protocol, social security payments made by one country to a resident of the other are taxable only in the country of residence. Once you're an Italian tax resident, Italy has the taxing right.
For US citizens there's a catch. The treaty's "saving clause" lets the US keep taxing its own citizens as if the treaty didn't exist. So:
- US citizen only, living in Italy: Italy taxes the benefits, and the US can too. The treaty's credit rules keep you from paying twice, but in practice you end up paying roughly whichever country's tax is higher.
- US–Italian dual citizen, living in Italy: the saving clause doesn't apply to this benefit, so only Italy can tax it. The IRS has confirmed this reading in a published information letter.
The US Side: $0 (Settled)
For this retiree, the US tax bill is zero. Half of the Social Security ($15,500) plus the pension ($8,400) comes to $23,900, which is under the $25,000 threshold at which Social Security becomes federally taxable for a single filer. The $8,400 pension falls below the 2026 standard deduction. That matters: with no US tax to credit against, every euro Italy charges is an added cost.
Scenario A: A Regular Italian Region
Italy's national income tax (IRPEF) has three brackets for 2026: 23% up to €28,000, 33% from €28,001 to €50,000, and 43% above that. The Budget Law for 2026 (Law 199/2025) cut the middle rate from 35% to 33%. Italy taxes Social Security and pensions in full; it has no equivalent of the US rule that makes only part of Social Security taxable.
| Step | Euros |
|---|---|
| 23% on the first €28,000 | €6,440 |
| 33% on the remaining €6,560 | €2,165 |
| Gross IRPEF | €8,605 |
| Minus pensioner tax credit (approx.) | −€490 |
| Net IRPEF | €8,115 |
| Regional and municipal surcharges (approx. 2.5%, varies by town) | €865 |
| Total Italian tax | ≈ €8,980 (≈ $10,240) |
That's an effective rate of about 26%, leaving roughly $29,200 a year, or about $2,430 a month, to live on.
Scenario B: A 7% Flat-Tax Town
Italy's special regime for foreign pensioners (Article 24-ter of the Italian income tax code) replaces IRPEF with a flat 7% tax on all foreign-source income: no brackets, no surcharges, and no deductions.
| Step | Euros |
|---|---|
| 7% of €34,560 | ≈ €2,420 (≈ $2,760) |
That leaves roughly $36,640 a year, or about $3,050 a month.
Who qualifies (Settled):
- You receive a pension from a foreign source. US Social Security and a US employer pension both count.
- You move your tax residence to a town of up to 30,000 residents in Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, or Puglia. The cap was 20,000 until April 7, 2026, when Law 34/2026 raised it, opening larger towns such as Ragusa, Altamura, and Lamezia Terme. Certain towns in the 2009 and 2016 earthquake zones of central Italy also qualify.
- The population figure that counts is the official ISTAT count on January 1 of the year before you move.
- You weren't an Italian tax resident in the previous five years.
- You elect the regime on your Italian tax return. It lasts ten tax years: the year you move plus nine.
Side by Side
| Regular region | 7% flat-tax town | |
|---|---|---|
| US federal tax | $0 | $0 |
| Italian tax | ≈ $10,240 | ≈ $2,760 |
| Effective rate | ≈ 26% | 7% |
| Left to live on each month | ≈ $2,430 | ≈ $3,050 |
What Changes With a $1 Million IRA and a $130,000 Roth
Now give the same retiree a $1 million Traditional IRA and a $130,000 Roth IRA, and have them withdraw $60,000 a year from the Traditional IRA. Total income rises to about $99,400 (roughly €87,200).
Because a US citizen roughly pays the higher of the two countries' taxes, the region decides almost everything:
| Regular region | 7% flat-tax town | |
|---|---|---|
| US federal tax (approx.) | ≈ $10,500 | ≈ $10,500 |
| Italian tax (approx.) | ≈ $36,300 (brackets up to 43% plus surcharges) | ≈ $7,000 (flat 7%) |
| Roughly what you actually pay | ≈ $36,300 | ≈ $10,500 |
In a regular region, Italy's tax is far higher than the US tax, and the excess can't be credited away. In a 7% town, Italy's tax is lower than the US tax and is credited against it, so the retiree pays about what they'd pay living in a no-income-tax US state.
The wealth tax on foreign accounts (Settled). Italy normally charges IVAFE, a 0.2% annual tax on the value of financial accounts held abroad, whether or not you withdraw anything. On about $1.13 million in IRAs, that's roughly $2,250 a year in a regular region. People in the 7% regime are exempt from IVAFE, and from the RW foreign-asset reporting that goes with it, for the life of the regime. Some Italian advisors argue that US retirement accounts should be exempt from IVAFE even under the regular rules, but most take the conservative view that it applies.
The Roth IRA (Contested). Italy doesn't recognize the Roth's tax-free status, and withdrawals may be taxed. We cover the details in our Italy Roth IRA and retirement account guide.
Qualifying on the IRA alone (Contested). Once you're in the 7% regime, it covers all your foreign-source income, including IRA withdrawals. Whether an IRA by itself counts as the qualifying pension is less settled. This retiree qualifies through Social Security and the employer pension, so the question doesn't arise here, but it matters for someone whose only retirement income is an IRA.
How Italy Compares With Spain and France
We've run the same retiree through Spain and France. Here's how the countries compare, using the same assumptions:
| Italy, regular region | Italy, 7% town | Spain | France | |
|---|---|---|---|---|
| Base case ($39,400) | ≈ $10,240 | ≈ $2,760 | ≈ $7,600 | ≈ $0 |
| With $60,000 a year from the IRA | ≈ $36,300 | ≈ $10,500 | ≈ $31,900 | ≈ $10,500 |
| Annual tax on IRA balances | ≈ $2,250 | $0 | $0 to ≈ $800+, by region | $0 |
Why France comes out ahead (Settled). The US–France treaty, as amended by protocol in 2004, makes US Social Security and US pension and retirement-plan distributions taxable only in the United States, whether paid periodically or as a lump sum. France exempts them from its income tax, so what's left is the US tax the retiree would owe anyway, with no time limit and no requirement to live in a particular town.
Why Spain's figure comes with an asterisk (Contested). Spain's tax agency has ruled in binding guidance that US Social Security is taxable in Spain, and our Spain figure follows that position. Some advisors argue it's exempt; under their reading, the base-case Spanish tax would fall to roughly $1,600. Spain also has no equivalent of Italy's 7% regime for retirees.
What People in This Situation Commonly Do
- Treat the 7% regime as a ten-year withdrawal window. Many take larger IRA withdrawals during the regime, often filling the 12% and 22% US brackets each year, so the account is much smaller before the regime ends and before required minimum distributions grow. RMDs on $1 million start at roughly $38,000 a year.
- Time Roth conversions carefully. Some convert while still US residents, paying only US tax; others convert inside the 7% window. How Italy treats a conversion isn't well settled, which is one reason people hire a cross-border specialist.
- Hold the Roth for later. Because Italy may tax Roth withdrawals, many treat it as a late-life or inheritance asset rather than first-line spending money.
- Set up the brokerage before moving. Some US firms restrict accounts for people living abroad. Retirees often consolidate with a custodian that serves expats while they still have a US address.
- Plan for year 11. When the regime ends, ordinary Italian rates and the foreign-asset tax return. Common plans: have the IRA mostly drawn down by then, keep only modest withdrawals, or move again. Greece is a frequent next stop because it has its own 7% regime lasting 15 years.
What This Example Doesn't Cover
- Government pensions follow different rules. If the $8,400 were a US federal, state, or local government pension, it would fall under Article 19 of the treaty, and Italy generally couldn't tax it (unless you're an Italian national). That would lower the Scenario A number.
- Healthcare isn't included. Retirees on Italy's elective residence visa generally need private health insurance, and those who later join the national health service (SSN) voluntarily pay an annual contribution, currently at least €2,000. Compare international health plans
- Currency moves the numbers. Italian tax is calculated in euros on dollar income. A stronger or weaker dollar changes both the tax and what's left over. See what converting your Social Security with Wise would cost
- Surcharges vary. Regional and municipal surcharges differ by town; we used about 2.5% as a typical combined figure.
How We Built These Numbers
Italian figures use 2026 IRPEF brackets, the standard pensioner tax credit, and an assumed 2.5% combined surcharge. US figures use 2026 federal brackets, the standard deduction including the age-65 additions, and the Social Security taxability thresholds. All conversions use $1.14 per euro. Figures are rounded and meant to show the size of the difference between the two paths, not to serve as a tax quote.
Sources: US–Italy Income Tax Convention (1999), Article 18 and Protocol; Joint Committee on Taxation, Explanation of Proposed Income Tax Treaty Between the US and Italy; IRS Information Letter 2005-0212; Italian Budget Law 2026 (Law 199/2025); Article 24-ter of the Italian income tax code (TUIR) as amended by Law 34/2026, art. 26; Agenzia delle Entrate Circular 21/E/2020; IRS 2026 inflation adjustments. For the Spain and France preview: Protocol amending the US–France Income Tax Treaty (2004), Article 18; Spanish Directorate-General for Taxation binding rulings V1841-13 and V0249-20.
This is general information, not tax advice. Tax rules in both countries change, and the right approach depends on your citizenship, account types, and timing. Confirm your situation with a US–Italy cross-border tax professional before making relocation decisions.