September 24, 2025
Navigating Italy’s progressive tax framework, the Imposta sul reddito delle persone fisiche (IPREF), can feel like undertaking a grueling hike under the watchful gaze of an omnipresent peak – one that hikers are advised against attempting to summit. In this analogy, the peak, or rather peaks to avoid, are Italy's highest tax bands. The highest of these applies to anyone earning above 50,000 euros and packs a 43% punch.
While there are discussions to raise this income threshold to around 60,000 euros in 2026, it remains an easy threshold to cross for many Americans, unless proper cross-border tax and financial planning is prioritized ahead of a move.
In this article, I’ll cover some of the most important considerations as to how IPREF impacts Americans moving to and retiring in Italy. We’ll also explore some of the common mistakes individuals make and how financial planning in advance of a move can mitigate the risk of making such a mistake. In this respect, I believe you’ll find the mountaineering references apt, as the success of any demanding climb or descent hinges on the quality of the preparation.
An Overview of Italy’s Income Tax - IPREF
Imposta sul reddito delle persone fisiche (IPREF) covers individual tax responsibilities for anyone who is an established tax resident in Italy. In Italy, filing jointly is not an option; each person is required to file individually.
The IRPEF is progressive. Think of each tax bracket as a bucket: your income fills the first bucket and is taxed at that bucket’s rate; only the portion that spills into the next bucket is taxed at the higher rate. Add up what you owe across all buckets to the Agenzia delle Entrate—Italy’s national tax authority, roughly the equivalent of the U.S. IRS—and divide by your total income. That weighted average is your effective tax rate.
Italy Progressive Tax Rates
When comparing this to the United States, there are some key distinguishing characteristics. The most glaring is definitely in the numbers, and you do not need a degree to understand how consequential this is for financial planning. However, the keys to navigating these differences are tucked into the densely layered text of the US-Italy double taxation treaty.
U.S. Progressive Tax rates — for comparison
When constructing financial plans for our clients relocating to Italy, understanding the overall impact of Italy's progressive income tax is crucial. For U.S nationals, this means aggregating aspects of your income that, in a normal context, would fall outside the realm of what is taxable. Clarifying what is taxable, at what rate, and why is one of the biggest aspects of financial planning for Italy, providing important reality checks for Americans and a strong foundation on which to build a compliant financial plan.
Save for later: High-Net-Worth Tax Planning for Americans
Understanding the Impact of IPREF on a Financial Plan
As mentioned above, the double taxation treaty between the United States and Italy governs key elements of building and managing financial plans for our clients. Essentially, this determines what gets taxed (i.e., type of security), where it gets taxed (i.e., Italy v. U.S.), and how it gets taxed (i.e., taxable rate).
For those who are Italian tax residents, you will be required to aggregate virtually all the sources of your U.S.-sourced income. A few common sources of U.S. income include: Social security income, pension income, distributions and withdrawals from IRAs, employment income, and rental income.
Does Italy Tax Retirement Income?
With specific exceptions, such as capital gains within a Roth IRA, Social Security income, pension income, distributions, and withdrawals from IRAs are considered sources of income and taxable in Italy at income tax rates.
This information is especially relevant for anyone planning retirement, nearing retirement, or currently retired in Italy (profiles that describe a vast majority of our clients), as on paper, taxes can quickly add up to an intolerable amount. As most of our clients are U.S. nationals, we understand how shocking this can be. You’ve worked hard and potentially done everything that you’ve been advised with regard to planning your retirement. From a pure US tax lens, you might be in a great place – but if your heart is set on retirement in Italy, there is likely some additional financial engineering that needs to happen to ensure that you are optimizing your retirement plan.
Of course, a lot of this depends on what stage you are in life, but there are some major themes, such as timing.
Two Important Questions to Answer When Building a Cross-Border Financial Plan
How many years do you have until retirement, if any?
When are you planning to move to Italy?
The longer your time horizon, the more runway we have as financial advisors to construct a financial plan that optimizes tax liabilities for Italy. This cross-border financial planning exercise, of digging into the nuances of Italian taxes and mapping their significance onto your particular financial profile, guides the mechanics and early workings of restructuring your portfolio.
Related reading: How to Move Abroad: Building Your Team
Building and Managing an Optimal Financial Plan for Italy
As you can see, there are some major cross-border levers that we evaluate, adjust, and calibrate for Italian taxes. Some prime examples:
When is the best time to start drawing down on Social Security?
How many years do you have until RMDs kick in?
What type of securities do you have in your retirement accounts (i.e., traditional IRA)?
Does it make sense to start doing Roth conversions, and what is the best timing?
Are there any other streams of income that could impact the plan?
At Liberty Atlantic Advisors, these questions capture the core of many early-stage conversations with the people we connect with and comprise the building blocks of the fully tailored plans we design for those who go on to become clients.
As guides on this arduous hike, our goal is to ensure that you’re prepared and that you have a portfolio that positively interacts with the nuances of Italy’s progressive income tax system. Through in-depth conversations with our clients, we design a framework that sets you up to feel financially successful when you make the move, rather than scattered and uncertain.
If you’re ready to set out, so are we. Feel free to submit the form on our contact page to organize a first meeting.
References
Disclaimer
This material is purely intended to be general and educational in nature, and should not be construed as specifically-tailored investment, financial planning, tax, legal, or other professional advice. Information and data contained herein is as-of the date of publication, and may be subject to change in the future without notice. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained herein should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. All investment, tax, and financial planning strategies involve risk that you should be prepared to bear. You are highly encouraged to consult with professionals of your choosing before taking any action based on this material.
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