OK, you need a CPA to confirm this. Americans are taxed on worldwide income. But as long as she is not in Italy, it’s possible that she will not owe taxes there. (It’s often true that Americans working abroad owe taxes in both countries.) If she were living in Italy and working abroad she would be entitled to a “foreign earned income exclusion” that could go as high as $105,900 depending on how much she earns.
So there are a couple of things at play here. If her employer is not reporting her wages to the Italian revenue service, she could probably just claim them as self-employed income –paying appropriate income taxes (including both sides of FIcA). But if her employer is reporting income in Italy, when she goes there to work she might find she owes back taxes to them!
And then there’s the currency translation. Is she going to receive the money in Euros and translate it into dollars? Or is she leaving the money in Euros in Italy? In that case, she would be subject to FATCA — the foreign bank account reporting form.
YOu DEFINITELY need help from a sophisticated CPA on this one!