Form 673: The Form Every American in Italy Must Know About

Form 673 settles this at the source. It is a standard IRS statement that tells the employer to stop withholding US income tax on wages covered by the foreign earned income exclusion.¹ Almost no one files it, most payroll departments have never processed one, and most accountants on neither side reach for it. Filing it during the year, rather than recovering the tax through a refund later, is the difference between a clean first year abroad and paying tax twice in the same year.

How to fill it out

The form is a single page in three parts, and it goes to your employer, not to the IRS.¹ Enter your name and Social Security number at the top, then complete the parts as follows.

• Part I, the qualification. Check the one test that applies. The physical presence box requires at least 330 full days abroad in a twelve-month period.³ If you cannot meet that day count but you are an Italian tax resident, use the bona fide residence box instead. Enter Italy as the country, and because Italy assesses residence over the calendar year, treating you as resident for the whole year once you qualify, the start date is January 1 of the year you became resident.⁶
• Part II, the housing estimate. This is optional, and for most people it is better left blank. Each housing figure the employer has to compute is another chance for error, and the foreign housing exclusion is cleaner to claim on the return.
• Part III, the certification. Sign and date it. The statement is made under penalties of perjury, which is why the qualification has to be accurate when you sign.

Once signed, hand it to whoever processes your W-4, in place of the usual withholding paperwork. The cleanest approach is to present it as a routine document your accountant told you to file so that tax is not incorrectly withheld, which avoids a round of questions from an HR representative who has never seen it. A third-party processor such as ADP usually inputs it more smoothly than an internal HR department, much like a W-4. Processing takes roughly two weeks, so file it promptly once residency is established.

What the exemption does

Below the annual exclusion ceiling, foreign wages are not taxed by the United States, so withholding against them serves no purpose. The ceiling is $130,000 for 2025 and $132,900 for 2026.² The form removes US income tax withholding only. Social Security and Medicare contributions may continue as long as the individual opts out of INPS with a certificate of coverage. Only US citizens may use the form; resident aliens cannot, even when they expect to qualify on the return.¹ Where the salary exceeds the ceiling, withholding correctly resumes on the excess, which is genuinely taxable.

What it costs to skip it

Skip the form and the employer withholds US tax all year on money destined for Italy. Recovering it means filing a US return that claims a refund, and a refund claim from a taxpayer living abroad is exactly the profile the IRS treats as a fraud risk. The taxpayer worked in the United States, now reports they did not, asks for the full amount back, and wants it sent to an Italian account. The IRS often responds with a demand to prove residency, and refunds to overseas filers are slow. Italy, meanwhile, taxes the same wages and asks why they were paid to the United States, which brings penalties on a side that tends to be less forgiving.

This is not a rare outcome. It usually follows from a domestic accountant filing the income as an ordinary stateside return and never seeing how the two systems connect. A return with no large refund also draws far less attention, which is itself an argument for stopping the withholding up front.

The alternative: claiming it back on the return

If you cannot use Form 673, which is the position of a permanent resident, or you simply did not file it in time, the over-withheld tax can still be recovered, but only on the return, and the two-country calendar makes that slow.

You file two returns, one US and one Italian, and they do not run on the same clock. Italy works on the calendar year and does not release its current forms until the middle of the year. The prior year's earned income is settled on the Italian return filed the following year, with the balance of Italian tax, together with the first advance, due by 30 June and the second advance by 30 November.⁷ The Italian figure you ultimately need is therefore not knowable early in the year.

That forces a two-step sequence. Early in the year you file the US 1040 and claim the foreign earned income exclusion on Form 2555, which removes the qualifying wages and produces a refund of the income tax that should never have been withheld.¹ Then, once the Italian return is finalized later in the year, you file an amended US return to reconcile what is left, in particular the foreign tax credit for Italian tax paid on any income above the exclusion ceiling.

The result is correct but cumbersome. It ties up the cash for months, requires two US filings instead of one, and places you in exactly the refund-from-abroad posture the IRS scrutinizes most closely. Stopping the withholding up front with Form 673 avoids all of it.

A costly mistake on the Italian side

When the withholding was never stopped, Italian commercialisti often try to resolve the double tax by having the Agenzia delle Entrate accept the US tax withheld on the wages as a foreign tax credit against the Italian tax. This is the wrong fix. A credit is available only for tax that was definitively owed to the other country, not for tax withheld in error. The wages are Italy's to tax and are excluded in the United States, so the US tax was never due, and the correct remedy is to recover it from the IRS, not to credit it in Italy.⁸

Pressing the credit anyway tends to open a multi-year dispute with the Agenzia delle Entrate, and the cost is not only the delay. While the argument drags on, the US amendment window, generally three years, can close, after which the withheld US tax can no longer be reclaimed from the IRS. The Italian window to amend or file correctly can close as well. The taxpayer is then left taxed by both countries with no open route to fix either side, which is the exact outcome Form 673 is meant to prevent.

Does your employer find out you are in Italy, and does it cost them?

Because the form concerns foreign earned income, handing it over signals where the work is performed. For many employees that disclosure is the real hesitation, so it is worth being clear about what the form does and does not put on the employer.

Filing Form 673 does not make your employer pay anything extra. It only tells US payroll to stop withholding federal income tax. It does not create an Italian tax bill for the company, an Italian payroll registration, or a social-contribution obligation. Your wages still run through the same US payroll; only the income tax line stops.

The expense people associate with moving abroad belongs to a different question, which is whether the employer must set up local Italian payroll through an Employer of Record. For a US citizen this is usually unnecessary, because US Social Security can be kept through the certificate of coverage. EOR arrangements through providers such as Rippling are expensive, often several hundred dollars a month for one or two employees, and most people on a US payroll do not need one. A US W-2 job performed from Italy is itself an unusual fact pattern. The withholding rules were built for traditional overseas postings, not a remote worker with a laptop, which is part of why payroll departments hesitate over the form.

There is one theoretical wrinkle on the employer's side. An employee working from Italy could, in principle, create a permanent establishment for the US employer there, exposing the company to Italian corporate tax.⁴ In practice Italy is not treating a single remote worker as an enforcement priority, a posture reinforced by recent rulings that admit remote work for a foreign employer and by Italy's own Digital Nomad Visa, which is built around exactly this arrangement while barring local Italian employment.⁵ The concern carries real weight only where the employer already has operations in Italy, in which case leaving withholding in place and recovering the tax on the return can be the safer route.

Coordinating the Italian side

Form 673 settles only the US half. Italy taxes the wages, and many newcomers qualify for the impatriati regime, which exempts half of qualifying employment income, or sixty percent for someone relocating with a minor child, for five years.⁵ The working structure for a US-employed American settled in Italy is to pair the two: the exclusion shelters the income on the US side, the impatriati reduction lowers the Italian tax, and Form 673 stops the improper withholding at source. Each regime has its own eligibility, confirmed separately. The form does not end the filing obligation either; the exclusion is still claimed every year on Form 2555.¹

Bottom line

For an American on a US payroll who has moved to Italy, Form 673 is the lever that keeps the right tax with the right country during the year. Filed promptly after residency is established, it prevents the double withholding, the refund fight, and the cross-border penalties that otherwise define the first year. It is the most consequential form most people in this position have never heard of.

Notes and sources

1. About Form 673 and Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad, Internal Revenue Service. Form 673 is the accepted statement furnished to a US employer to stop income tax withholding on wages eligible for the foreign earned income and housing exclusions. Only US citizens may use it, and the exclusion is still claimed on the annual return on Form 2555.
2. IRS releases tax inflation adjustments for tax year 2026, Internal Revenue Service. Maximum foreign earned income exclusion of $130,000 for tax year 2025 and $132,900 for 2026.
3. Publication 54 (12/2025) and Form 673 (Rev. August 2019), Internal Revenue Service. Qualification under either the bona fide residence test or the physical presence test of at least 330 full days in a foreign country during a twelve-month period.
4. Agenzia delle Entrate, Circolare n. 25/E del 18 agosto 2023 (tax profile of remote work performed from Italy for a foreign employer, addressing residence and the activity carried on in the national territory).
5. Agenzia delle Entrate, Risposta a interpello n. 2 del 12 gennaio 2026 (a worker resident in Italy performing the activity remotely for a foreign employer may access the regime) and Risposta a interpello n. 82 del 20 marzo 2026 (continuity with the same foreign employer is not an obstacle, with the increased 60 percent reduction where a minor child is present). The regime reduces qualifying employment income by 50 percent, or 60 percent with a minor child, for the year of transfer and the following four, under Article 5 of Legislative Decree no. 209 of 27 December 2023.
6. Agenzia delle Entrate, Circolare n. 20/E del 4 novembre 2024 (individual tax residence is assessed over the tax period, which is the calendar year, so a person who meets a connecting criterion for the greater part of the year is resident for the entire year).
7. Agenzia delle Entrate, Modello Redditi Persone Fisiche 2026, modello e istruzioni. For taxpayers whose tax period is the calendar year, the balance and first advance are due 30 June (payable within the following thirty days with a 0.40 percent surcharge) and the second advance 30 November.
8. Agenzia delle Entrate, Risposta a interpello n. 13 del 23 gennaio 2025 (under Article 165 of the TUIR the credit is allowed only for foreign taxes paid on a definitive basis, the definitiveness being clarified by Circolare n. 9/E del 2015; tax that remains recoverable in the source State is not definitive and is not creditable).