Money and taxes

The Foreign Earned Income Exclusion for Americans in Italy (2026)

By Vincenzo GrecoFacts checked October 24, 2026

Maximum for 2026

$132,900 per person (Rev. Proc. 2025-32)

Maximum for 2025

$130,000 per person (Rev. Proc. 2024-40)

Who qualifies

A foreign tax home, plus bona fide residence for a full tax year or 330 full days abroad in 12 months

How to claim

Form 2555, filed with your Form 1040

Not covered

Pensions, Social Security, dividends, interest, capital gains and self-employment tax

2026 housing expense limit

$73,200 in Milan, $49,000 in Rome, $39,870 where Italy has no listed city

Italian tax

Still due if you are an Italian tax resident

What the foreign earned income exclusion is

The IRS taxes US citizens on worldwide income, wherever they live. The foreign earned income exclusion (FEIE) lets you leave part of your pay for work abroad out of taxable income.

It is voluntary, claimed on Form 2555 with your Form 1040, and applies only if you file a return reporting the income.

Who qualifies

You need foreign earned income, a tax home abroad, and one of two tests. Your tax home is your regular or main place of business or employment. It is not abroad if your abode, where your closer family, economic and personal ties are, stays in the US.

Bona fide residence turns on facts such as why you are in Italy, what you do there and whether you pay Italian tax. You fail it if you tell Italy you are not a resident and Italy does not tax you as one.

Physical presence counts only full days, midnight to midnight, so your arrival day usually does not count. The days need not be consecutive, and you pick the 12-month window that gives the largest exclusion.

What counts as foreign earned income

Foreign earned income is pay for personal services you perform in a foreign country:

• salaries, wages, commissions, bonuses, tips and professional fees
• self-employment income from your own services
• allowances such as cost of living, education or quarters (housing)

The source is where you do the work, not where or how you are paid. A New York employer's salary paid into a US account counts if you earn it working in Italy.

The IRS lists as unearned: dividends, interest, capital gains, pensions, annuities, Social Security benefits and alimony. Rents, royalties and business profits can be earned, unearned or partly both.

The Los Angeles and New York consulates state that the elective residence visa does not allow work in Italy.

How much you can exclude

Spouses who both work abroad and each pass a test, not necessarily the same one, can each claim it. A part year is prorated by day: in an IRS example, a bona fide residence starting August 14, 2025 allows up to $49,863 for 2025.

The housing exclusion and deduction in Italy

You can also exclude or deduct part of your housing costs. Employees take the housing exclusion, for housing paid from employer-provided amounts such as salary. The self-employed take the housing deduction.

For a full year:

1. Add qualifying expenses: rent, utilities other than phone, property insurance, nonrefundable lease fees, furniture rental, residential parking and household repairs.
2. Cap them at the limit for your location.
3. Subtract the base housing amount: $21,264 for 2026 ($20,800 for 2025).

Buying a home, mortgage principal, buying furniture, domestic help and pay TV do not count.

Notice 2026-25 sets higher limits for six Italian cities. The rest of Italy uses the standard $39,870.

For 2025, the limits were $65,300 in Milan, $44,900 in Naples and $43,700 in Rome. The notice lets you apply a higher 2026 limit to 2025.

How it fits with the foreign tax credit and the treaty

The foreign tax credit, claimed on Form 1116, reduces US tax by income tax paid abroad. You cannot take it on income you excluded, but you can on earned income above the amount excluded.

The exclusion stays in effect for later years until you revoke it. Claiming the credit on income you could have excluded counts as revoking it. After a revocation, choosing the exclusion again within 5 years needs IRS approval.

The 1999 US-Italy income tax treaty does not stop the US from taxing its citizens. Article 1 lets the US tax its citizens as if the treaty did not exist. Article 23 is an exception: the US allows a credit for income tax paid to Italy, within US law. See the US-Italy tax treaty.

The stacking rule

Excluded income still sets your rate. You figure tax on your remaining income at the rates that would have applied without the exclusion. The Foreign Earned Income Tax Worksheet in the Form 1040 instructions does this.

Self-employment tax and the Social Security agreement

The exclusion does not reduce self-employment tax. The US-Italy Social Security agreement, in force since November 1, 1978, removes double coverage, and SSA says it assigns expatriate workers mainly by nationality. A US citizen working in Italy who would be covered by US Social Security without it stays in the US system. That worker is exempt from Italian contributions, and dual US-Italian citizens who are self-employed can choose either system.

Italy taxes you too

Italy taxes its tax residents on all their income. The rule is article 3 of the TUIR (Testo unico delle imposte sui redditi, the income tax code). A new consolidated code replaces it from January 1, 2027. See taxes in Italy for Americans.

How to claim it

1. Check both tests against your dates in Italy and your tax home.
2. Complete Form 2555 and attach it to Form 1040.
3. File by June 15, the automatic extension if you live abroad on April 15. Interest on unpaid tax runs from April 15.
4. File Form 2350 if you will meet a test only after your return is due. The extension usually runs 30 days past the date you expect to qualify.
5. Mind the election window: a timely return, an amended one, or a return filed within 1 year of the original due date.

Italian accounts may also require an FBAR.

Common problems and fixes

Assuming pay from a US company cannot be foreign. On US expat tax forums, remote workers on US payroll or 1099 contracts regularly ask whether their pay qualifies. What counts is where you work, and a record of workdays settles it: the IRS splits mixed pay by days worked in each country.

A self-employment tax bill under the limit. The exclusion never reduces it. The Social Security agreement decides which system you pay into.

Excluded salary raising the rate on capital gains. This question recurs there too. It is the stacking rule; the worksheet shows the rate.

Not yet 330 days when the return is due. Form 2350 extends the deadline until you qualify.

Do you need help with this?

An employee with one salary and simple investments can often complete Form 2555 alone. It gets harder with self-employment, a part-year move, Italian tax to coordinate, or a past choice you want to change.