In this post we will answer this simple question: "Does a US Citizen who moves to Italy with a US Public Service Pension have to pay taxes in Italy?".
We will have to analyze the Convention against double taxation between Italy and the US, and in particular article 19, on "Government Service".
Let's start!
1 - THE STARTING POINT
The starting point of the analysis is tha tax residence question: "Where's the individual tax resident? In Italy or in the US?"
EXAMPLE
Let's consider the case of a US Individual who has moved to Italy in the beginning of the year 2026 and he/she has just started receiving his/her Pension from a US Federal Agency.
If the Individual has moved in Italy at the beginning of 2026 and he/she will remain in Italy for the rest of the year 2026, he/she will be tax resident in Italy for 2026.
You can find more information on Tax Residence here:
In particular:
Having said that, let's move on and read article 19, paragraph 2 of the Convention:
"ARTICLE 19
Government Service
2. Subject to the provisions of paragraph 2 of Article 18 (Pensions, Etc.):
(a) Any pension paid by, or out of funds created by, a Contracting State or a political or administrative subdivision or local authority thereof to an individual in
respect of services rendered to that State or subdivision or local authority shall be taxable only in that State.
(b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident and a national of that State."
So let's apply this article 19 to our example:
(a) Any pension paid by, or out of funds created by, a Contracting State (the UNITED STATES, as we are talking of a Federal Agency's Pension) or a political or administrative subdivision or local authority thereof to an individual in
respect of services rendered to that State or subdivision or local authority shall be taxable only in that State (the US).
(b) However, such pension shall be taxable only in the other Contracting State (ITALY) if the individual is a resident (YES, HE/SHE IS TAX RESIDENT OF ITALY) and a national of that State (NO: SHE/HE IS NOT AN ITALIAN CITIZEN).
So, the first answer to our question is:
In the Example we made, the US Individual has moved to Italy but he doesn't have to pay any taxes in Italy beceuse of his/her Federal Agency's Public Pension.
The US Citizen will have to pay taxes only in the US on this Public Service Pension and he doesn't have to report the pension inside the Italian tax return.
It's important to understand that this doesn't mean that the individual doesn't have to file at all an Italian tax return: there could be several other reasons to comply with the Italian tax return, such as:
- there could be other incomes, in Italy or in the US, that have to be reported and taxed in Italy. Keep in mind that if you're tax resident of Italy, the general rule (art. 19 - par. 2 is an exception!) is for you to report and tax in Italy all of your worldwide incomes.
- even if you don't have any other income other than your Public Service Pension, you are obliged to report into the Italian Tax Return the assets that you own in the US, like:
- US financial accounts:
- bank account;
- deposit accounts;
- brokerage accounts;
- US Pension funds: IRA, Roth IRA, 401K, TIAA CREF, etc.
- Real estates owned in the US or elsewhere outside of Italy
- Shares of US Companies;
- Crypto assets, and other assets.
- etc.
You can find more resources on US Pensions here:
in particular:
2 - WHAT IF BENEFITS PAID BY A STATE ARE IN THE FORM OF SOCIAL SECURITY BENEFITS?
Having answered the first question, let's dig in some typical variations: so, is the answer the same if the Pension Benefits paid by a State or a political or administrative subdivision or local authority are received in the form of Social Security Benefits?
No, the answer is different: the Technical Explanations to the Convention are clear in this case:
"When benefits paid by a State in respect of services rendered to that State or a subdivision or authority are in the form of social security benefits, however, those payments are covered by paragraph 2 of Article 18 (Pensions, Etc.)."
Article 18, paragraph 2, of the Convention states:
"ARTICLE 18
Pensions, Etc.
2. Payments made by a Contracting State (the US) under provisions of the social security or similar legislation of that State to a resident of the other Contracting State (ITALY) shall be taxable only in the other State (ITALY)."
Article 18 says that the general rules for pensions is that taxation is always in the Country of Tax Residence, hence in Italy in our example.
So, if the Pensions Benefits are received in form of Social Security Benefits, the US Citizen must report and tax these incomes in Italy.
3 - WHAT IF THE US CITIZEN IN OUR EXAMPLE ACQUIRES ITALIAN CITIZENSHIP?
The second variation on the theme is the following one: what if the US Citizen in our example, after a certain number of years of being in Italy, decides to acquire Italian Citizenship?
Also in this case the answer is different: let's go back to Paragraph 2 - sub par. (b) of article 19:
"b) However, such pension shall be taxable only in the other Contracting State (ITALY) if the individual is a resident AND a national of that State."
So, we are in a situation in which acquiring Italian Citizenship for the US individual would trigger automatically the Italian taxation of the US Public Service Pension.
Unless strictly necessary, it's probably not suggestable to acquire Italian Citizenship in this case.
4 - WHAT ARE THE PENSIONS INCLUDED IN ARTICLE 19 - PAR. 2 OF THE CONVENTION?
Another typical question is the following one: what are the pensions included inside the realm of article 19 paragraph 2 of the Convention?
Now, we can tell that the following pensions are for sure included inside the provision of art. 19 par. 2:
- DoD pensions; Department of Defence Pensions;
- Pensions paid to retired Civilian and Military Employees of the US Government;
- US Railroad Public Service Pensions;
- Pension paid by a US State;
- Federal Reserve Banks Pensions;
- Federal Agency's Pensions;
- Pensions for Diplomatic Services.
In some other cases, especially when the pensions are gathered by local and County's authorities, it could be more difficult to understant if they qualifiy inside art. 19 par. 2 or inside art. 18. par. 2.
5 - CAN THE TAX BREAK FOR US RETIRED PERSON 7% BE APPLIED IF THERE IS A PUBLIC SERVICE PENSION?
The last question we consider is somehow tricky: can the Public Service Pension qualify the individual for the Tax Break of 7% for Retired Persons who move in the South of Italy?
The question is tricky as this Tax Break requires the individual to have a US Pension to be able to apply for it, and for sure Public Service Pensions of art. 19 are indeed US Pension, no doubt about that.
The tricky part, though, is the following one: the Tax Break "implies" the US Pension is taxable in Italy. In fact, inside the Italian Tax Return, there is a double box in which to report:
BOX 1: All of the incomes produced in a certain year by the taxpayer (included the US Pension);
BOX 2: The US Pension received.
So, if for example the US Citizens have the following incomes:
US incomes:
US dividends: 100;
US capital gains: 200;
US interests: 150;
US rents: 300;
US Pensions: 1.000.
The two boxes of the Tax Break of 7% for Retired Persons who move in the South of Italy should be filed in this way:
BOX 1: 100+200+150+300+1.000=1.750
BOX 2: 1.000
But, if the Pension is a Public Service Pension and all of the requirements of art. 19 par. 2 are met, then this pension is not taxable in Italy. Thus the two boxes should be filed in this way:
BOX 1: 100+200+150+300=750
BOX 2: 0
Putting ZERO inside Box 2 would be a little bit problematic, as the Tax Break requires a Foreign pension to exist, so it's normally a number above zero.
So, the application of the Tax Break of 7% for Retired Persons who move in the South of Italy can be ambiguos in this case.
You can find more information on the Tax Break of 7% for Retired Persons who move in the South of Italy here:
in particular:
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If you need more information on the Italian Fiscal Code or the opening of a Partita IVA, you can send an email to:
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Enrico Povolo