Italian Income Tax on Military Retired Pay and Social Security

Military retired pay. Article 19(2)(a) of the 1999 U.S.-Italy income tax convention makes a pension paid by a government in respect of services rendered to it taxable only in that country, and Article 19(2)(b) makes it taxable only in the other country if the recipient is both a resident and a national of that other country. A U.S. retiree living in Italy owes no Italian tax on retired pay; one who also holds Italian citizenship is taxable on it in Italy, and because the saving clause lets the United States keep taxing its own citizens, the overlap is relieved by foreign tax credit. The exemption has a condition the summaries leave out. The saving clause in Article 1(2) lets Italy tax its residents as if there were no treaty, and Article 1(3)(b) keeps the Article 19 exemption only for individuals who are neither citizens of Italy nor have immigrant status there. Treasury's technical explanation reads immigrant status as admission for permanent residence. A U.S. retiree on a temporary Italian residence permit keeps the exemption; one admitted to permanent residence in Italy loses the treaty's protection and is taxed under Italian law. Ask an Italian tax adviser before changing residence status. U.S. Social Security. Article 18(2) makes social security payments by one country to a resident of the other taxable only in the country of residence, so Italy taxes U.S. Social Security received by an Italian resident. Article 18(2) is not among the provisions the saving clause spares, so the United States also keeps taxing its citizens' Social Security, with relief by credit. VA disability compensation is not named in the treaty, and Italy's treatment of it was not researched for this entry. It is exempt from U.S. tax under 38 U.S.C. 5301.