Social Security, pensions and the US-Italy totalization agreement

Americans who work in Italy, or who retire there after a US career, deal with two social security systems: the US program run by the Social Security Administration (SSA) and the Italian system run by INPS, the Istituto Nazionale della Previdenza Sociale. The two countries have coordinated these systems since 1 November 1978, when the US-Italian Social Security Agreement entered into force. It was later amended by a supplementary agreement signed in Rome on 17 April 1984, in force from 1 January 1986. This guide explains what the agreement does for a US citizen, where it differs from other US agreements, and what paperwork you keep.

What a totalization agreement is for

The SSA describes its international agreements, usually called totalization agreements, as having two purposes. First, they eliminate dual social security taxation, where a worker pays contributions to both countries on the same earnings. Second, they fill gaps in benefit protection for people who split their careers between the United States and another country. The IRS adds that these agreements must be considered whenever you decide whether someone owes US Social Security and Medicare tax, or whether a US citizen owes the social security taxes of a foreign country.

On the Italian side, the agreement covers compulsory general insurance for old age, disability and survivors. It does not turn your Italian health coverage or other benefits into US programs, and it does not replace either country's own eligibility rules. It coordinates them.

Italy is the exception among US agreements

Most US agreements contain a "detached worker" rule: an employee sent abroad temporarily by a US employer stays in the US system for a limited period. The SSA states plainly that the agreement with Italy is a departure from the others because it does not include a detached-worker rule. Its basic rule is territoriality, but coverage for expatriate workers depends mainly on nationality.

Article 7 of the agreement text, published by the SSA, sets this out:

• people employed or self-employed in a country are generally subject to that country's laws;
• services performed by a US national in Italy that are covered under US law remain covered under US law;
• where the same work would be covered by both countries, a national of one country stays under the system of the country of nationality and is exempt from the other;
• an Italian national, or a dual US-Italian national, in that situation elects which system to remain in.

For a US citizen without Italian nationality, the practical effect is that work which US law already covers stays in the US system, and you are exempt from Italian contributions for that work. Work in Italy that US law does not cover falls under the general rule and is subject to Italian law.

Self-employed Americans

The SSA's summary of the Italian agreement is clear on the self-employed: self-employed US nationals working in the United States and Italy are assigned US coverage. Dual US-Italian nationals who are self-employed in Italy may elect either US or Italian coverage.

The IRS confirms the other half of this picture. If you are a self-employed US citizen, the rules for self-employment tax are generally the same whether you live in the United States or abroad, and you owe it when your net earnings from self-employment are at least 400 dollars. You must count all self-employment income when you figure net earnings, even if you excluded part of your income with the foreign earned income exclusion. The IRS gives the example of a consultant abroad whose net profit is fully subject to self-employment tax despite claiming the exclusion.

So a US freelancer living in Italy should expect to keep paying US self-employment tax on Schedule SE, and use the agreement to show Italy that the same earnings are covered in the United States.

Certificates of coverage

The exemption only works when one country certifies to the other that the work is covered by its system. The agreement says the exemptions are effective when the agency of the covering country certifies the periods of work to the other country's agency. In practice:

• Self-employed, staying in US coverage. The IRS says to request a certificate of coverage from the SSA Office of International Programs. That certificate establishes your exemption from the foreign social security tax.
• Self-employed, staying in Italian coverage. Request a certificate from the Italian agency. If Italy will not issue one, the IRS says to ask the SSA for a statement that your income is not covered by US Social Security. Attach a photocopy of the certificate or statement to your Form 1040 every year.
• Employees. To establish an exemption from US coverage, the SSA explains that the employer in Italy requests a certificate (form IT/USA 4) from the INPS provincial office in the province where the Italian employer is located. No special form is needed for the request.

For an employee certificate request, the SSA lists the details to provide: the worker's full name, country of permanent residence, US Social Security number, names and addresses of the employer in the United States and in Italy, the date employment began, the Italian social insurance number if known, and the date of transfer and anticipated return. US employers keep the certificates in case of an IRS audit and do not send them to the IRS unless asked.

The IRS notes that someone claiming an exemption from US Social Security and Medicare taxes under an agreement must obtain the certificate from the social security agency of the other country and give it to the US employer.

Combining credits for benefits

The second job of the agreement is to stop a split career from leaving you without a pension. Under Article 8, if one country requires a minimum period of coverage, its agency takes into account periods of coverage completed in the other country as needed.

The SSA's operations manual (POMS GN 01705.120) explains how this works on the US side:

1. If you have at least six US quarters of coverage but not enough to qualify for US benefits, the SSA can count your periods of work under the Italian system.
2. The SSA credits one US quarter of coverage for every thirteen weeks of Italian coverage in a calendar year, up to four per year.
3. It does not count Italian coverage before 1937, weeks in a quarter already credited in the US, or periods not based on work under Italian law.
4. If you already have enough US credits on your own, the SSA cannot count Italian credits.

Italian credits are measured in weeks, which is why the conversion uses weeks. Benefits paid this way are called totalization benefits and are computed under the SSA's separate method, so they reflect only the US share of your career.

Italian benefits in brief

The SSA's summary of the Italian program gives the retirement ages it lists: 66 years and seven months for men and 65 years and seven months for women, rising gradually with life expectancy. It also describes a minimum of 20 years of contributory or deemed coverage for workers first covered before 1996, with exceptions, and early retirement at any age with 42 years and 10 months of coverage for men or 41 years and 10 months for women. Disability benefits come in partial (AOI) and total forms, both payable outside Italy. For current Italian figures, INPS is the authority; the SSA directs people to inps.it and to social security offices in Italy.

Receiving US benefits while you live in Italy

Article 6 of the agreement says people eligible for benefits under one country's laws receive them fully and without restriction while they reside in the other country. For US retirees moving to Italy, the SSA's Payments Abroad Screening Tool lets you confirm whether your retirement, disability or survivor payments continue indefinitely abroad or are subject to country restrictions, and it lists how to contact the SSA from outside the United States.

A paperwork checklist

• Keep a copy of every certificate of coverage, IT/USA 4 or SSA-issued, with the years it covers.
• If you are self-employed, attach the certificate or SSA statement to your Form 1040 every year.
• Download your SSA earnings record before you move so you can count your US quarters.
• Keep INPS statements of your Italian contribution weeks; they are what the SSA converts.
• If you hold both nationalities, decide your election deliberately, since dual nationals choose their system.

Common questions

Does the US-Italy agreement have a detached-worker rule? No. The SSA states that the Italian agreement is the exception among US agreements because it has no detached-worker rule. Coverage for expatriate workers depends mainly on nationality.

Do I pay US self-employment tax while freelancing in Italy? Generally yes. The SSA assigns self-employed US nationals working in the US and Italy to US coverage, and the IRS says self-employment tax applies abroad when net earnings are at least 400 dollars, even if you claim the foreign earned income exclusion.

How are Italian work weeks counted toward US benefits? If you have at least six US quarters but not enough to qualify, the SSA credits one quarter for every thirteen weeks of Italian coverage in a year, up to four quarters per year.

Who requests the certificate when an Italian employer hires me? For an exemption from US coverage, the employer in Italy requests form IT/USA 4 from the INPS provincial office where it is located.