TAXES - Figuring out Taxation on American Social Security Benefits

Hello everyone.
I've been googling until my fingers hurt, both on Italian as well as American portals, to figure out how much tax the Italian Government charges on American retirees in Italy who only have Social Security as their income?

The US - IRS portal refers users to the American Embassy in Italy for this. The American Embassy in Italy writes back that that is a question which needs to be answered by the American IRS ... which of course doesn't make any sense to me since the American IRS is not responsible for taxation in Italy.

I have found perhaps a dozen portals which talk about taxation for private as well es public pensions. But none of those articles fully explain the difference between the two. I even found a page that does explain the differences, but without fully explaining in which of the two categories an American Social Security pension belongs. How can it be so difficult to find this out?

The scenario ...

My wife and I wish to retire in Italy. We're legally old enough to retire, we have no jobs, and once we sell our home we won't have any assets either. From the proceeds of our home we will purchase a home in Italy for us to live in. So Italy will be our primary country of residence and the home there will be the only home which we own. We have no private pensions and no financial investments.
American Social Security benefits are 100% our only income.

We don't plan on living in one of the 7% regions either. What happens if you live more than ten years? No, we plan on residing near Venezia / Camponogara, which has no special rules for retirees and their income. But we can't even begin to figure out if this will be affordable to us, until we find out how much taxes the Italian Government takes away from American Social Security benefits?
Our monthly benefits are apx. 1650 Euros every month.
We can easily live with that since there are no children.

We've heard horror stories of 27% taxation on income. Well, when you take away 27% from the 1650  Euros that we receive every month, then life in Italy becomes impossible for us.

We've also heard horror stories about no free, untaxable amount, as is customary in the US, Canada, and many European Countries. Is this true? Every penny of regular income is being taxed by the Italian Government, even if the retiree or wage earner makes less than 10.000 or 20.000 Euros per year?
It would be great to hear from someone who resides in Italy, an American who resides there while living on their own American social Security.
Thank you.

Hello, I am back to thinking about retirement in Italy and have the same questions as you. In addition, there is the minimum income needed to be allowed to stay in the country. I have read the cost per couple is 38k Euro per year and and equal amount in savings is required. Be sure you check.

That is not 100% accurate from what I have been able to find out. When you own your own house without a mortgage, then it is completely different. It's also not so bad when you have some savings in the bank because the savings, just like a house, provide you with some leverage.

My wife and I believe that owning a house that is bought and paid for is the best method for being able to live in Italy, so that's what we're going to do. If you own more than one home you will be taxed 22% property value on each additional home. You will also pay this 22% when ou buy a home in Italy ... if you still own a residence somewhere else. That is why we will be selling our home before we move, followed by purchasing a home in Italy afterwards.

Way down South in Italy near the end of the boot, there are regions with 20.000 or less residents. some of those regions offer 7% taxation for retiress, for 10 years.

For us the ability to stay in Italy is much simpler anyway since I have dual citizenship for the USA and for Germany. As a member of the EU, I don't even need a Visa in order to live in Italy with my wife. But we also want the benefits of the Italian health insurance and because of this we will be buying a home there immediately, after we sell our home in Germany. You can't be a resident of Italy with Italian health insurance if your primary residence is not located in Italy also.

This site in English gives the Italian taxation tables.

https://www.icalculator.info/italy/inco … /2020.html

Thank you . Tom . in . Stuttgart.
Unfortunately, this still does not answer our question, which has to do with the Italian identification of "public" and "private" pensions. For one type, taxes are due from/to (income), but from the other type no taxes are due.

The American "Social Security Pension" is neither one nor the other and we cannot find anything anywhere that clarifies this question 100%. On the Italian government tax page, it is stated that the IRS (from where the Social Security is paid out) can answer this question.... but if you inquire there, it is pointed out that the Italian tax office would be responsible for such questions (which makes sense).
The whole thing is crazy ...    :unsure

No Problemo, somehow we will find the right answer. I'll see if the company "H&R Block" has offices in Italy. If so, they will definitely know the answer.
Greetings from the Vogelsberg Region.

Hi, I am Italian woman living in the US. I will be  moving back to Italy next year. I would talk to an italian commercialista who is specialized in international taxes. I did not read your previous email and therefore i do not know the details,  but that is what I  would do. Hope that helps. Anna

Hi Freejack.

I'm afraid that owning a home in Italy does not open the door for legally residing there. I've read that on websites, but it's false.

If you are not an EU citizen, you will need to first apply for an elective residence visa from the Italian consulate that serves your place of current residency. I can tell you without a doubt that they will first be looking for a steady and guaranteed monthly income stream (such as a pension, annuity, etc.) of at least $3,500 per person per month. Yes, I know, that is very high! But I'm afraid that's the way it is. Second, they will be looking to see how much you have in savings and investment accounts as a back up. You will also need to have your own private health insurance.

If you are granted the visa, you will have to apply for a permesso di soggiorno once you arrive in Italy. The visa allows you to get to Italy with the intention of staying longer than 90 days, but it is the permesso di soggiorno that allows you to stay, like the US green card for immigrants moving to the US. Once you have the permesso di soggiorno in hand, you will need to register your residency with the comune office where you reside and it is then that you can pay to join the Italian health care system, the cost of which is calculated based on your income and will likely be cheaper than private insurance, although it won't cover dental and a few other things that private insurance might.

So check the visa information on the Italian consulate website that serves where you live. It won't mention the income amount because, to be honest, it's one way they have to easily deny if they want to do so. But I can tell you from my own experience and that of the many expats that I know in Italy, the $3,500 per month per person figure is about what they'll be looking for as a guaranteed monthly income stream, but if you don't have that, you can still apply and see what happens.

As for taxes, Italy will fully tax your US social security benefits. Tax rates below (remember to convert dollars into euros to find your bracket):

€0           - €15,000    23.00%
€15,000 - €28,000    27.00%
€28,000 - €55,000    38.00%
€55,000 - €75,000    41.00%
€75,000 and up         43.00%

Married couples file separately in Italy. There are some deductions that might apply, but very few.

Under the tax treaty, social security benefits are covered under Article 18. Although it says they are taxed by the country of residence, both countries reserve the right to tax you under their tax laws so most people who collect Social Security benefits file in Italy first, then file their US taxes because Italy's tax rates are higher and take a tax deduction if need be on their US taxes. The protection from double taxation clause of the tax treaty is there for that reason. Since Italy's tax date isn't until June, you'd have to file for an extension with the IRS, but that's pretty routine.

Article 19 refers to pensions paid as a result of actual government employment (civil service, military, foreign service, etc.), so is taxed differently by Italy. In fact, they don't tax it unless one is both a resident and an Italian citizen.

So that's the difference between the two. Social Security and government pensions are two different types of income and are taxed differently by Italy.

Hope this helps.

Hi, I just read your post with lots of very useful information. I just want to make sure I understand correctly. According to the Italian law, someone with a dual citizenship moving to Italy and with a social security  from the US less then  $ 1000 per month gets taxed 23%? That is unbelievable..... Am I understanding correctly? That is a lot  indeed, considering that I am not taxed here in the US where I still live, because my social security is so  very small.
Are there any exception to that?
Thank you

@MryLu

Your information above is incorrect.

If you are an EU Citizen you are automatically allowed too purchase a home as a residence and to reside in that home without any other requirements. This is not Italian law, but EU law which Italy conforms to.
That's our plan since I am a German born Citizen and consequently an EU member with the privilege of purchasing a home in Italy. Once you own your own home and reside there, you can register yourself with Italian authorities. As an EU member the only financial proof that we need is proof of enough income to support our lives for paying bills, groceries, insurance, etc.

This is not the same for US citizens who come to Italy from another Country. BUT, it is not impoossible. As a US citizen you can elect to live in another European Country such as Germany (others too) for five years. After 5 years are up you can then request a EUROPEAN RESIDENCE PERMIT. The five years is a requirement for this and once again, this is EU Law which Italy conforms to.
Once you have a European Residence Permit (valid in all EU countries), you can then buy yourself a home in Italy just like any other EU members, followed by applying locally for residency with proof of being able to support your own lifestyle.
for this it is critical that you do not have large debts, a home mortgage, or other large debts through credit cards, etc.

In other words, if you own your own home bough and paid for, debt free ... if you have no other large debts ... and if you have legal EU residency or citizenship, then it becomes much easier to live in Italy for the rest of your days.

Now as far as income is concerned, MryLu, you are also incorrect. We received the following information directly from the Italian IRS, the federal organization for taxation in Italy. If you are living in Italy legally there is a tax free threshold for the first 8000 Euros which applies to Italian residents. It doesn't matter if you're married or not because the Italien government doesn't care. It's not your household income that's taxed, but the individual income. Again, this is for people who are already legal residents.

So my Italian cousin is married, but her and her husband file each their own taxes. His income is large enough to have to pay taxes. But her income is normally less than 8000 Euo per year, so she never declares her income, because less than 8000 Euros per year does not require filing taxes. You can research this yourself, it took me a few weeks to find all of this out by using deepl.com translation services on dozens of official Italian websites.

Hi Annab1414.

Yes, I'm afraid that is correct. Italy will tax your social security benefits at the appropriate tax rate, and any other income type you might have (interest, dividends, capital gains, 401K withdrawals, etc.).

They will also tax any retail investment accounts you have calculated at .02% of the balance (called a "wealth tax") and any bank accounts at a flat tax of 39 euros each.

Freejack.

I was replying to your initial post in which you did not mention that you are also a German citizen, thus my information is correct, as I said, for non-EU citizens.

As far as taxes, I did say there was the possibility of deductions if one qualifies. I do not, thus can't take it. If you do qualify under their tax laws, then you'll be able to do so. BTW, the name of the Italian "IRS" is Agenzia delle Entrate.

Anyone can buy a home in Italy, as long as their home country has a reciprocal agreement with Italy. One does not need to be a resident of Italy to do so. Thousands of non-resident, non-EU citizens own vacation homes in Italy.

I know all about the permanent EU residence card because I have one. I have lived in Italy for 8 years. As a non-EU citizen, I must still fulfill the other country's requirements. The residence permit does not give a non-EU citizen carte blanche to live anywhere in the EU. From this website's FAQ https://ec.europa.eu/immigration/genera … eady-eu_en :

"As a long-term resident in one EU country, can I live and work in a second EU country?

"Yes. You can stay in a second EU country for more than three months for purposes including work, study or training, if you apply for and are granted a residence permit in this second country.

"To obtain a residence permit for a second EU country, you may have to show that you have one or more of the following:

"Stable and regular financial resources to maintain yourself and your family;
Health insurance;
Appropriate accommodation;
If you wish to take up a job, evidence of employment;
If you are self-employed, evidence that you have sufficient financial funds;
If you wish to study or train, proof that you are registered to do so.
You may also be required to comply with integration measures such as language requirements.

"The second EU country may have set a quota on the number of residence permits it issues. This could mean that your application may be refused if this quota has been met, even if you fulfill the appropriate conditions. The second EU country can also examine the labour market situation before allowing you to work, giving preference to persons already staying there legally."

I have been looking into moving to Spain so have been in contact with their immigration office. The first two things they asked me were 1) how much is your monthly retirement income, and 2) do you have health insurance?

Hallo there,

if you scroll down from here, you will find the answer to your question.. I had the same question  myself.
I am an Italian woman living in the States. I will be moving back to Italy next year and  live on my social security. Taxes are very high in Italy so do not be surprised. Hope this help.
My family who lives in Rome  confirmed that.

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