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U.S. Tax Obligations for U.S. Citizens in Italy: Tax Returns, FBAR, and Streamlined Procedures

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A US citizen residing in Italy (even if they have dual US-Italian citizenship) it must still comply with US tax obligations. In fact, the United States applies taxation on a basis citizenship and not just residence, which means that all US citizens, wherever they live, are required to report their global income to the US tax authorities. Below we illustrate in detail which returns must be filed, the income thresholds for the 2023 tax year, who can avoid filing a return, and the obligations related to’FBAR (Foreign Bank Account Report), the penalties for unfiled returns from 1 to 5 years, and how to regularize through the Streamlined Filing Compliance Procedures (simplified procedures for returning to compliance).

General obligations for US citizens abroad

All US citizens, even if living abroad, must file a US tax return if their annual income exceeds certain thresholds. Generally speaking, an American in Italy must send the form to the IRS every year 1040 (U.S. Individual Income Tax Return) declaring the global income (worldwide income) received, similarly to those residing in the United Statesi. This includes income from employment, self-employment, pensions, investments, rent, etc., regardless of the country of origin of the income.

It is worth noting that foreign income that is exempt or excluded must also be considered in determining the filing requirement. For example, if you intend to take advantage of the Foreign Earned Income Exclusion – which for 2023 allows you to exclude up to $120.000 concerning foreign earned income – it is still necessary to file a tax return in order to benefit from it. Similarly, foreign tax credits for taxes paid in Italy (Foreign Tax Credit) can avoid double taxation, but require the filing of the Form 1116 along with the 1040. In summary, Paying taxes in Italy does not exempt you from filing in America – you must declare everything to the US tax authorities, and then use the available tools (exclusions, credits, treaties) to eliminate or reduce any potential double taxation.

Anyone who permanently resides abroad enjoys a’automatic extension an automatic 2-month extension to file Form 1040 (until June 15 instead of April 15), but any tax due must still be paid by April 15 to avoid interest. An additional extension until October 15 can be obtained by requesting it (Form 4868). Please note that declare it does not necessarily mean promissory notemany American expats end up not having to pay additional US taxes thanks to exclusions or tax credits, but they still must comply with the reporting obligation.

Minimum income thresholds for the filing obligation (2023)

The obligation to file a US federal income tax return depends primarily on income, tax statusfiling status age. The minimum thresholds of gross annual income for the fiscal year 2023 (tax return to be submitted in 2024) are summarized below:

  • Single (unmarried): $13,850 (if under 65 years of age); $15,700 (if 65 years of age or older)​.
  • Married Filing Jointly: $27,700 (both spouses under 65); $29,200 (if one spouse is 65 or older); $30,700 (both 65 or older)​.
  • Married Filing Separately: $5 (fixed threshold, at any age). ⚠ Note: If one spouse files a separate return and claims itemized deductions, the other spouse must file a separate return regardless of income (the $5 threshold stems from the fact that, in such cases, the full standard deduction cannot be claimed).
  • Head of Household (with dependent child): $20.800 (<65 years); $22.650 (if ≥65 years)​.
  • Qualifying Surviving Spouse (surviving spouse with a dependent child, treated as "Married Filing Jointly"): $27,700 (<65 years old); $29,200 (if ≥65 years old).

The figures reported above essentially correspond to standard deduction scheduled for 2023 based on tax status, in addition to any age supplement (65+). Those who have a gross income equal to or higher than at such thresholds You must file Form 1040​. For example, a single U.S. citizen under the age of 65 who earned more than $13,850 in 2023 is required to file a U.S. income tax return.

Other special cases: regardless of income, anyone who has earned at least $400 from self-employment(self-employment) in 2023 must file a tax return, as they are subject to the payment of social security contributions (Self-Employment Tax). Additionally, there are specific lower thresholds for dependents (dependents) of others, and reporting obligations even in the presence of specific credits/taxes (e.g., collection of a US pension, withheld taxes that one wishes to recover, etc.). In most cases, however, for a non-dependent adult residing abroad, the standard thresholds listed above apply.

Who can be exempt from the declaration obligation

They do not exist nationality exceptions - an American must file regardless of whether they have dual citizenship or foreign residency. However, some taxpayers abroad may not have to file the return based on income level or other conditions. In particular, who has an annual gross income below the minimum thresholds seen above he is not required to file Form 1040​. For example, a single person under 65 with a 2023 income of only $10,000 does not meet the threshold and therefore theoretically He has no obligation to declare.

Those who also are effectively exempt are they did not receive any income during the year (zero income). Be careful though: although the legal obligation lapses below the thresholds, It may still be advantageous to voluntarily file the tax return in some cases. For example, if they have suffered withholdings on US income (withholding taxes) or if you are entitled to a refund refundable credits (like the Earned Income Credit), the only way to get a refund is to file a tax return even with low income. Furthermore, filing returns regularly even with zero tax liability can be useful to maintain a track record tax compliance.

In short, It is exempt from the obligation only who does not exceed the income thresholds during the year (barring any particular situations) and does not fall under other specific requirements. In any case, staying below the threshold does not exempt one from foreign reporting obligationssuch as the FBAR or Form 8938 if applicable (see following sections).

Foreign Bank Account Reporting (FBAR) obligation

In addition to the tax return, a U.S. citizen in Italy must pay attention to the obligations of reporting of foreign financial accounts. In particular, the legislation of Bank Secrecy Act mandates the annual presentation of the FBAR(Foreign Bank Account Report, excluding FinCEN Form 114) for those who own foreign accounts or financial assets that exceed certain thresholds. If the aggregate value of all foreign accounts in which you hold ownership or have signing authority exceeds $10,000 at any time during the calendar year, you must file an FBAR..

This means that even if, for just one day during the year, the total balance of foreign accounts (checking accounts, deposits, securities accounts, etc.) exceeds $10,000, the reporting requirement is triggered. All U.S. citizens and residents are subject to this obligation, regardless of their country of residence. For example, an American living in Italy with an Italian bank account and a foreign securities account, whose combined balances reached €9,500 (approximately $10,300) at one point, must file the FBAR.

The FBAR It does not need to be attached to the IRS tax return, but transmitted separately online to the Department of the Treasury (FinCEN) through the BSA E-Filing system. The deadline is April 15 of the following year, with automatic extension to October 15th if it is not submitted by Aprili. The FBAR requires the details of each foreign account: financial institution, account number, maximum value reached during the year, etc. It is a compliance requirement For informational purposes only: does not involve the payment of taxes, but they serve to communicate the existence of financial assets held abroad to the US authorities.

Not to be confused with the FBAR, it is Form 8938 (FATCA), which is the form used to report foreign financial assets in detail, to be attached to Form 1040 in cases of substantial foreign assets (much higher thresholds, e.g., $200,000 for single individuals residing abroad). Form 8938 does not replace the FBAR: a taxpayer with many assets may have to file both. In practice, almost every American in Italy with more than $10k in the bank will file an FBAR; only those with substantial assets also file Form 8938.

FBAR penalties: failure to file the FBAR is prosecuted severely. In the event of a violation involuntary, a civil penalty of up to $10.000 for each unreported year. If, however, the omission is deemed willful – for example, an intentionally hidden foreign account – the penalties can rise to 50% of the balance of the account for each year of violation, or $100.000 (adjusted for inflation) for each account, if greater. In addition, in severe cases, the following may apply: criminal penalties (fine and imprisonment). It must be emphasized that such penalties can be avoided by adhering to the voluntary regularization procedures (see below the Streamlined), whereas they become highly likely if the IRS/FinCEN discovers the omissions before the taxpayer comes forward.

Penalties for failure to file US tax return (1–5 years)

He failure to fulfill reporting obligations toward the U.S. tax authorities can entail a series of financial and legal consequences. Below we examine the penalties and implications in the event of omitted tax return (Form 1040) for a US citizen residing abroad, distinguishing the scenario from 1 up to 5 consecutive undeclared years:

  1. 1 undeclared year: if for a tax year one was required to file Form 1040 but failed to do so, the IRS can apply a Failure-to-File Penalty (penalty for omission of declaration). This penalty generally amounts to 5% of the tax due for each month (or fraction thereof) of delay, up to a maximum of 25%​. For example, if $2,000 in taxes were due for the undeclared year, the penalty can amount to $500 for each month of delay, up to a cap of $500 × 5 = $2,500 (equal to 125% of the tax due, but the law limits this to 25% of the total amount due)​. If the delay exceeds 60 days, a fixed minimum penalty, equal to $485 for the 2023 tax returns (amount updated annually), unless the 100% amount of tax due is lower. In addition to penalties, the following accrue: Interests on unpaid amounts, calculated daily. Note: if for the year in question no tax was actually owed (for example, because Italian taxes or exclusions reduced the US tax liability to zero), the percentage penalty is not applied (calculated on the unpaid tax, which is zero). However, the possible fixed penalties after 60 days remain and, above all, You lose the right to any refunds due for withholdings or credits in that year if the tax return is not filed within 3 years.
  2. 2 consecutive undeclared years: Failing to file two consecutive tax returns essentially results in the penalties being applied to each year. The IRS may impose a penalty of up to 25% on the tax due of each year, with interest continuing to accrue on both unpaid annual amounts. After the first missed year, the IRS typically sends a notice of failure to appear (Notice) if there is evidence of income (e.g., from W-2, 1099 forms, or FATCA bank reporting). If the taxpayer ignores the second year as well, the IRS may take more decisive action. In some cases, the IRS proceeds to prepare a substitute return called SFR (Substitute for Return) estimating income based on available data – often without considering deductions or credits, thus generating a high tax liability. With two years of omissions, the tax debt (if any) doubles, and so do the related penalties, and the taxpayer begins to emerge as habitual defaulter, attracting more attention.
  3. 3 consecutive undeclared years: Once the three-year threshold is crossed, the consequences worsen even further. First of all, there is no statute of limitations: The IRS can legally demand unfiled tax returns even after many years, since the ordinary assessment period (3 years) does not even begin to run until the tax return is filed. In practice, the undeclared years remain “indefinitely ”open". After 3 years, the IRS generally insists on a regularization of the last 6 years (established internal policy requires requesting at least the last six unfiled tax returns). The accumulation of penalties for failure-to-file over 3 years it can reach the 75% of the total taxes due (25% × 3), plus the failure to pay(penalty for nonpayment, 0.5% per month) and interest. The IRS may also consider whether the repeated failure to file constitutes conduct volunteerIf it is believed that the taxpayer has deliberately avoided filing, the case could turn into a stricter punitive context or even a criminal one. At this stage, further ignoring the situation becomes very risky, and it is strongly recommended to voluntarily undertake a compliance procedure before the IRS moves to drastic measures.
  4. 4 consecutive undeclared years: with four missed years, the profile is serious and prolonged breach of contract. Penalties and interest continue to increase for each year. The IRS will almost certainly have placed the taxpayer in programs of collections (compulsory collection): this may include the issuance of a pledge o tax lien on the assets that the taxpayer owns in the USA, or even the seizure of any income/sums owed to them by US entities (via levyFor a citizen abroad, the IRS can act through international agreements to recover tax debts (even if effectiveness depends on the treaty with the country of residence; in the Italy-US case, there is cooperation in tax matters). After 4 years, if the amounts owed are substantial, the accumulated tax debt (taxes + penalties + interest) could exceed the threshold of the so-called seriously delinquent tax debts. Since 2015, the IRS can report to Department of State taxpayers with severely delinquent tax debts (over approximately $55.000 of debt), which can lead to refusal to issue or renew the passport and even the revocation of the current one. This measure has been used as a coercive lever and represents a serious obstacle for those living abroad. In summary, in the fourth year of failing to file a return, the taxpayer risks not only very heavy financial penalties, but also limitations of civil rights (e.g., travel) and a potential international dispute.
  5. 5 consecutive years (or more) undeclared: Five years in a row without filing tax returns constitutes an extremely serious situation. At this point, The IRS could initiate criminal action if the conduct is considered willful and fraudulent. The US legal system provides that’omitted voluntary tax return constitutes a misdemeanor: each undeclared fiscal year intentionally can result in up to 1 year in prison and a federal fine of $25,000In exceptional cases, if the evasion is massive, more severe charges (tax fraud, false statements) with heavier prison sentences may be brought. Although criminal prosecution for simple omissions is rare non-fraudulent, after 5 years of noncompliance, the taxpayer is effectively exposed to this risk, especially if the IRS finds evidence of willful misconduct (e.g., ignored correspondence, concealment of assets, advice from unscrupulous advisors, etc.). On the civil side, financial penalties reach their peak: each of the five years will have accrued its own 25% penalty, for a theoretical total of 125% of the taxes owed by adding up the years (without counting interest and other penalties), making the debt potentially higher than the income itself. It is clear that such a situation It is not sustainablethe citizen risks not only financial ruin and lawsuits, but also compromising their US citizenship (in extreme cases of criminal tax conviction, the government could revoke passports and hinder their return to the US).

To summarize: it is essential Do not let the non-conformity drag on. The IRS usually prefers that the taxpayer come forward voluntarily to remedy the situation, rather than having to intervene with coercive means. To this end, specific regularization procedures which allow citizens in default to regularize their position with reduced or zero penalties, if they act before being formally contested. In the next paragraph we examine the main one of these solutions, the Streamlined Filing Compliance Procedure.

Streamlined Filing Compliance Procedures

For US taxpayers abroad who realize that be out of compliance With the US statements, the IRS provides tax “repentance” procedures aimed at facilitating compliance. The most relevant for expatriates is the program called Streamlined Filing Compliance Procedures (SFCP), and in particular its non-resident variant: the Streamlined Foreign Offshore Procedure (SFOP).

What is the Streamlined? It is a simplified procedure introduced in 2014 that allows taxpayers willfully non-defaulting (meaning that they omitted declarations due to error, ignorance, or negligence, but No for deliberate fraud) of settle one's tax position with the IRS. In essence, the taxpayer can retroactively file missing returns and foreign information returns, paying any taxes owed, in exchange for a waiver (or significant reduction) of penalties normally applicable. This program represents a “streamlined path” to voluntarily get back in compliance, avoiding the ’avalanche“ of fines that could otherwise hit those who have missed obligations.

Key requirements: to be able to participate in the Streamlined, the taxpayer must certify that one's past failures were not intentional (non-willful). This is done through a sworn statement (Form 14653 for non-residents) explaining the circumstances and affirming good faithi. Furthermore, to qualify as foreign offshore (meaning in order to be entitled to the most favorable treatment without penalties), it is necessary to meet the non-residency requirement: in at least one of the last 3 tax years, the taxpayer must have been physically outside the US for at least 330 days (basically, qualifying for the foreign residence definition under’exclusion of foreign income, if a citizen or permanent resident). Dual citizens who live permanently abroad generally fall into this category without any issues.

What does the Streamlined procedure (SFOP) entail:

  • It is necessary to submit (or resubmit, if inaccurate) the last 3 tax returns not filed. In particular, the 3 most recent fiscal years for which the deadline has passed they must be prepared and submitted in complete form (Form 1040 + any attachments). For example, those wishing to apply in 2025 will need to submit returns for the 2022, 2021, and 2020 tax years (given that the 2023 deadline just passed in 2024). If any of these had already been filed but in an incomplete manner (e.g., without foreign forms), they must be submitted as amended returns integrative (Form 1040-X). The following statement must be added to each return: “Streamlined Foreign Offshore” highlighted to indicate that it falls under the special procedure.
  • It needs to be filled out and submitted all foreign information returns eventually omitted in those years. This includes modules such as Form 8938 (foreign financial assets), it Form 114 FBAR, it Form 5471 (ownership of foreign corporations), it Form 3520/3520-A (foreign trusts and gifts), etc., if applicable. In particular, it is required to submit the FBARs for the last 6 years undeclared. FBARs must be submitted through the FinCEN portal, selecting the reason “Other” and indicating Streamlined Filing Compliance Procedures in the explanation of the delay.
  • Payment is required all taxes due for those 3 years prior to submission, along with interest calculated up to the date of payment. In practice, a payment (check or bank transfer) must be included for any unpaid US taxes for the omitted years—though often, thanks to exclusions and credits, this amount is zero or modest for many expats.
  • The already mentioned document must be attached certificate of non-voluntariness (Certification by U.S. Person Residing Outside of the U.S., Form 14653) signed, stating that the omission of foreign income, taxes, and information was due to non-willful conduct. This document is crucial: without it, the application No It will be processed under the favorable conditions of the Streamlined.

Streamlined benefits: if the procedure is completed correctly and the taxpayer is admitted, the IRS commits to do not impose penalties for past delays on foreign income and information that has emerged. In particular, for those returning to the Streamlined Foreign Offshore they come civil penalties completely wiped out that would normally apply (both for failure-to-file and failure-to-pay on tax returns, as well as FBAR penalties). This means no 5% fines per month, no $10,000 for failure to file an FBAR, etc. (Otherwise, the version domestic For U.S. residents, however, it provides for a flat penalty of 5% on undeclared foreign assets. For an American living in Italy, therefore, the program allows for to become compliant without any penalty, paying at most the taxes due (often already paid abroad) plus interest. This represents an extremely convenient opportunity compared to the potential penalties illustrated before. Furthermore, the IRS waives ad hoc audits on these practices: returns filed through Streamlined are not automatically audited, although random selection or selection due to inconsistencies remains possible as with any statement.

Another implicit advantage is that the Streamlined requires only 3 years of past tax returns and 6 of FBAR, even if the omitted years were more. Indeed, by adhering to this procedure one “cleans up” their tax record limited to that period: the IRS generally turns a blind eye to the older years (unless huge incomes or fraud emerge). For example, anyone who has failed to file for 5 years will be able to regularize their status by filing the last 3; the years prior to the third-to-last will remain unfiled, but as a matter of practice, the IRS will not pursue them further once the Streamlined is accepted (barring cases of blatant fraud).

Other regularization procedures: in addition to the Streamlined, the IRS offers two specific options for particular situations:

  • The Delinquent FBAR Submission Procedures, usable if the only one default was the failure to file FBAR (and all taxes on foreign income had already been paid or were not owed). In this case, the taxpayer can simply submit the delinquent FBARs (with an explanation for the delay) and generally no penalty will be applied.
  • The Delinquent International Information Return Submission Procedures, similar to the previous ones but referring to other unsubmitted information returns (e.g., Form 5471, 3520), provided there was no additional tax due. Here too, the IRS allows them to be filed late with an explanatory letter, avoiding the very steep default penalties.

These “simplified” procedures must be followed Great to be contacted by the IRS. If the IRS has already started an audit or sent a notice For the omitted years, it is no longer possible to use the Streamlined procedure or voluntary disclosure procedures. In this case, the only way is the Voluntary Disclosure Program via the IRS criminal investigation unit, a more complex process with heavier penalties, beyond the scope of this article.

Conclusion: A U.S. citizen residing in Italy must be aware of their tax obligations toward the United States and take action in a timely manner to fulfill them. Filing the U.S. tax return every year (even with zero tax due) and reporting foreign accounts via FBAR/FATCA are fundamental steps to to be compliant with the US tax authorities. In case of past non-compliance, the important thing is Do not procrastinatethe IRS offers voluntary compliance opportunities like Streamlined, which is worth taking advantage of while one is eligible, to wipe out heavy potential penalties and return to full tax compliance with peace of mind

!! IMPORTANT DISCLAIMER !!

The information contained in this article is fprovided exclusively for informational and general purposes. They do not constitute personalized legal, tax, or accounting advice, nor are they intended to replace the advice of a qualified professional. OrEach tax situation is unique and can vary based on numerous personal and jurisdictional factors.

To receive an accurate evaluation in compliance with your individual position, it is strongly recommended to contact a licensed professional, as a Tax Attorney tax lawyer or a Certified Public Accountant (CPA)specializing in international taxation.

If necessary, Link2America is available to put you in touch with specialized law or tax firms and with experience handling cases for U.S. citizens living abroad.

CLICK HERE TO REQUEST ASSISTANCE FROM ONE OF OUR ASSOCIATED PROFESSIONALS

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