U.S. Taxes for Americans Living in Israel: The 2026 Guide

Key takeaways

• US citizens and green card holders in Israel generally keep filing a full US return every year, because worldwide income follows citizenship, not residence.
• Israel taxes residents whose "center of life" is in Israel, and olim who became residents on or after January 1, 2026 must report foreign income and assets to the ITA even where that income is exempt.
• The US–Israel income tax treaty has applied since January 1, 1995, but its saving clause lets the US tax its citizens largely as if the treaty did not exist.
• There is no US–Israel totalization agreement, although a 2026 Israeli law exempts certain new US olim from Israeli National Insurance for five years.
• Israeli savings products such as keren hishtalmut and Israeli mutual funds can trigger US trust and PFIC reporting, and practitioners disagree on how to treat some of them.

Do Americans living in Israel still file US taxes?

Yes. A US citizen or resident alien's worldwide income is generally subject to US income tax wherever they live, and the filing requirements are the same as in the United States. Green card holders are resident aliens for any year in which they held lawful permanent residence.

Filing thresholds. Whether you must file depends on gross income, filing status and age, using the charts in the Form 1040 instructions. Gross income for this test includes income you later exclude under the Foreign Earned Income Exclusion, and self-employed people must file if net self-employment earnings are $400 or more. For reference, the standard deduction is $15,750 single and $31,500 married filing jointly for 2025, and $16,100 and $32,200 for 2026. These amounts are indexed annually.

Deadlines for the 2025 return.

• April 15, 2026: regular due date; interest on unpaid tax runs from here.
• June 15, 2026: automatic two-month extension to file and pay if you live and have your main place of business outside the United States on April 15. Attach a statement explaining that you qualify.
• October 15, 2026: further extension to file (not to pay) with Form 4868, requested by June 15.
• December 15, 2026: a discretionary extra two months, requested by letter by October 15.

Israel-specific relief. IRS disaster relief for events in Israel postponed many deadlines to September 30, 2026; that date has passed.

When does Israel treat you as a tax resident, and what does it tax?

Residency test. Under the Income Tax Ordinance [New Version], 5721-1961, an individual is resident if their "center of life" is in Israel. Two rebuttable presumptions support the test: 183 days or more in Israel in the tax year, or 30 days or more in the year plus 425 days or more across that year and the two before it. Immigration status is a separate question: an oleh visa or Israeli citizenship does not by itself settle tax residency, and a US citizen with no Israeli status can still become resident.

Proposed reform, not in force. In July 2025 the ITA published a draft bill to replace the rebuttable presumptions with conclusive tests based on "weighted days of presence" (for example, 75 days in the year plus 183 weighted days over three years). It does not appear to have been enacted: a June 29, 2026 newsletter from S. Horowitz & Co. still analyzes residency under the existing center-of-life test and day-count presumption, and the Knesset dissolved on July 17, 2026 ahead of the October 27, 2026 election. As of October 17, 2026, the existing rules described above therefore appear to apply. A new Knesset could revive the bill.

Tax base. Israel taxes residents on worldwide income and non-residents on Israeli-source income, a framework in place since a 2003 reform. The treaty's residence article only defines who is resident; it does not establish what Israel taxes.

New immigrants and veteran returning residents.

• Ten-year exemption on foreign-source income for olim and veteran returning residents (generally abroad 10 or more years).
• Reporting exemption repealed. Amendment 272 to the Ordinance (April 2024) ends the exemption from reporting foreign income and assets for anyone who becomes resident on or after January 1, 2026. The tax exemption remains. The ITA issued a draft circular on October 26, 2025.
• Exemption on Israeli earned income. A temporary law enacted March 30, 2026 exempts Israeli-source employment and business income of olim and veteran returning residents who became resident between November 5, 2025 and December 31, 2026, up to NIS 600,000 for 2026 (prorated), NIS 1,000,000 for 2027 and 2028, NIS 350,000 for 2029 and NIS 150,000 for 2030, or NIS 140,000 a year for related-party income. Passive income is not covered.

Rates, briefly. For 2026, tax on employment income runs from 10% to 47%, plus a 3% surtax on taxable income above NIS 721,560, for a top marginal rate of 50%. From 2025, an additional 2% surtax applies to capital-source income above that threshold. A tax credit point is worth NIS 242 a month in 2026; residents start with 2.25 points.

Local filing. Israel's tax year is the calendar year. Many salaried residents need not file, but foreign income, rental income and foreign assets above set thresholds generally require a return (Form 1301), due April 30 subject to extensions.

Is there a US–Israel tax treaty?

Yes. It was signed November 20, 1975 and amended by protocols of May 30, 1980 and January 26, 1993; the IRS gives a general effective date of January 1, 1995. The IRS also posts a Treasury Technical Explanation covering the 1980 protocol. Key provisions for individuals:

• Saving clause (Article 6(3)). Each country may tax its residents and citizens as if the treaty had not come into effect. Exceptions (Article 6(4), as amended): grants (Art. 10), charitable contributions (Art. 15-A), social security payments (Art. 21), double-tax relief (Art. 26), non-discrimination (Art. 27) and mutual agreement (Art. 28).
• Tie-breaker (Article 3(2)). Permanent home, then center of vital interests, habitual abode, citizenship, and mutual agreement. An oleh is deemed to have his center of vital interests in Israel. It matters for Article 21 (below); green card holders should get advice before claiming treaty non-residence, since the consequences are fact-specific.
• Dividends and interest (Articles 12, 13). Israeli tax on dividends to US residents is capped at 25% (lower for qualifying companies); interest at 17.5%, or 10% on bank loans.
• Private pensions (Article 20). Taxable only in the residence country, but the saving clause preserves US tax on citizens.
• Social security (Article 21). Social security and other public pensions paid by one country to a resident of the other are exempt in both countries, and the saving clause does not override this. The IRS confirms the result: Publication 915 lists Israel among the countries where US citizens who are residents are exempt from US tax on their benefits, with the benefits reported on Form 1040 line 6a and zero on line 6b. The condition is being a resident of Israel under the treaty. A US citizen living in Israel is usually resident in both countries, so the Article 3(2) tie-breaker decides. An oleh is deemed to have his center of vital interests in Israel. Someone who keeps a permanent home in the United States may lose the exemption. Treaty disclosure on Form 8833 is generally waived for social security and public pensions (Treas. Reg. §301.6114-1(c)(1)(iv)). Article 32(2) lets either country end this exemption separately.
• Israeli charities (Article 15-A). Deductible on a US return up to 25% of Israeli-source adjusted gross income.
• Double-tax relief (Article 26). A US foreign tax credit under US law and limits, using the treaty's source rules in Article 4.

Some practitioners say the treaty re-sources certain US income to Israel for credit purposes, though no treaty provision clearly does this.

How do you avoid paying tax twice?

The two main US tools cannot be stacked on the same income. For the general mechanics of the FEIE, the Foreign Tax Credit and the stacking rule outside Israel-specific figures, see our guide on FEIE vs. Foreign Tax Credit.

Foreign Earned Income Exclusion (Form 2555). Up to $130,000 for 2025 and $132,900 for 2026, indexed annually, if you have a foreign tax home and meet the bona fide residence or physical presence test. It does not reduce self-employment tax: excluded self-employment income still counts toward net earnings from self-employment.

Foreign Tax Credit (Form 1116). Israeli income tax offsets US tax on foreign-source income, but not tax on income you excluded. Income is split into categories, mainly general and passive, and unused credits generally carry back one year and forward ten.

Which tends to fit. Israeli rates on earned income often match or exceed US rates, so the credit frequently leaves little US tax on Israeli wages and builds carryovers. The exclusion can suit income lightly taxed in Israel, which may include earnings covered by the 2026 olim exemption. Model both against your facts.

Timing. Both countries use the calendar year, so there is no fiscal-year mismatch. Credits are taken when Israeli tax is paid unless you elect, irrevocably for later years, to take them when they accrue.

Social security: will you pay both?

No totalization agreement. The SSA's list of agreements in force has 31 countries, most recently Romania from September 1, 2026, and does not include Israel. There is no certificate of coverage to request and no rule assigning you to one system.

Employees. US Social Security and Medicare generally do not apply to wages for work abroad unless, among other exceptions, a US citizen or resident works for an "American employer" such as a US corporation. Israeli residents are also generally subject to Bituach Leumi and health contributions.

Self-employed. US self-employment tax applies to net earnings of $400 or more wherever you live, and the exclusion does not reduce it. Self-employed Israeli residents also pay Bituach Leumi.

The 2026 exemption for US olim. Amendment 262 to the National Insurance Law, enacted February 25, 2026, is reported to exempt new immigrants from the United States from Israeli National Insurance on employment and self-employment income on which US Social Security tax is paid, for five years from aliyah. It does not cover health contributions, the employer's share, passive income, or olim who arrived before 2026. It is unilateral: it removes the Israeli charge, not the US one.

Can Bituach Leumi be credited? Pub. 514 bars a credit for social security taxes paid to a country with a US social security agreement, which Israel lacks, and says a levy funding retirement or disability benefits is not payment for a specific economic benefit if it does not depend on the individual's age or life expectancy. Whether Bituach Leumi otherwise qualifies as a creditable income tax is not settled in any published guidance, and any credit would offset income tax only, not self-employment tax.

US benefits. Under Article 21, US Social Security paid to someone resident in Israel under the treaty is exempt in both countries (see the treaty section). Without an agreement, Israeli and US work credits cannot be combined to qualify for US benefits.

Which US forms apply to accounts and assets in Israel?

• FBAR (FinCEN Form 114). Required if your foreign accounts together exceeded $10,000 at any time in the year, including accounts you only have signature authority over. Filed with FinCEN, due April 15 with an automatic extension to October 15.
• Form 8938. For people living abroad: specified foreign financial assets above $200,000 at year-end or $300,000 at any time (single), or $400,000 and $600,000 (married filing jointly), attached to Form 1040. Foreign mutual funds count; directly held real estate does not.
• Israeli banks. Israel and the US signed a reciprocal Model 1 FATCA agreement on June 30, 2014, in force since August 29, 2016, so Israeli banks identify and report US persons' accounts.
• CRS. Israel exchanges information under the OECD Common Reporting Standard, with first exchanges in 2019. The United States does not participate in CRS.

Local pensions, retirement accounts and investment funds

Treaty position. Article 20 assigns private pensions to the residence country, but the saving clause preserves US tax on citizens. No treaty provision defers US tax on Israeli pension growth.

Common products and competing views.

• Keren pensia and bituach menahalim: many Israel-based practitioners treat employer plans as foreign employee trusts without annual PFIC reporting; others say the underlying investments need PFIC analysis.
• Keren hishtalmut: some treat it as a foreign grantor trust (Forms 3520 and 3520-A); others treat employer funds like pensions. Self-employed funds are more widely treated as PFIC or trust exposures, and employer contributions tax-free in Israel may be taxable US wages.
• Kranot ne'emanut and Israeli ETFs: generally PFICs reported on Form 8621 (a non-US fund or ETF may create a Form 8621 obligation).

IRS relief. Revenue Procedure 2020-17 exempts certain "tax-favored foreign trusts" from Forms 3520 and 3520-A if conditions such as contribution limits are met; the IRS has not said which Israeli products qualify. A PFIC reporting exception for certain foreign pension funds in Treas. Reg. §1.1298-1 has not been confirmed to cover typical Israeli funds. Get a written position from a cross-border preparer.

Running a business or company in Israel

Classify the entity first. On the per se list, the only Israeli entity automatically treated as a corporation is the "Public Limited Company" (Treas. Reg. §301.7701-2(b)(8)(i)). A private Israeli company is therefore an eligible entity that can choose its classification. Under the default rules for foreign eligible entities (Treas. Reg. §301.7701-3(b)(2)), it is treated as a corporation (an "association") if all members have limited liability, as a partnership if it has two or more members and at least one does not, and as disregarded if it has a single owner without limited liability. A member has limited liability if it has no personal liability for the entity's debts by reason of being a member, judged under the law the entity is organized under. A typical Israeli private company limited by shares therefore defaults to corporate status unless it elects otherwise on Form 8832. Check this before assuming a CFC.

If it is a corporation. A US person owning 10% or more of a foreign corporation more than 50% owned by such shareholders holds a CFC, and Subpart F and GILTI may apply. For tax years beginning after 2025, GILTI was renamed "net CFC tested income" (NCTI) and its computation changed. Individuals may elect under section 962 to be taxed at corporate rates on these inclusions. Related forms include 5471, 8992 and, for disregarded entities, 8858.

Self-employment tax. Owners of disregarded entities owe it on profits.

Treaty point. Article 15(1)(e) lets Israel tax a US resident's gain on shares of an Israeli company where the seller held more than 50% of the votes and most business assets are in Israel.

Buying, renting and selling property

Selling a home. Section 121 excludes up to $250,000 of gain ($500,000 on a qualifying joint return) on property owned and used as your principal residence for at least two of the five years before sale. The statute sets no condition on where the home is located, so an Israeli home can qualify. Gain is measured in dollars, so currency movements change the result.

Shekel mortgages. Repaying a foreign-currency mortgage on a personal residence can create a taxable exchange gain even if the home makes none. Section 988 does not apply to a personal residence mortgage, but Rev. Rul. 90-79 and Quijano v. United States, 93 F.3d 26 (1st Cir. 1996), treat the loan as a separate transaction, and a personal exchange loss is not deductible.

Israeli side. Real estate gains fall under the Land Appreciation Tax Law (mas shevach), a tax the treaty covers (Article 1, as amended). Section 49B(2) generally exempts the sale of an Israeli resident's only residential apartment if it was held for at least 18 months and the seller has not used the exemption in the preceding 18 months. A foreign resident can qualify only by showing they own no home in their country of residence. The full exemption is reported to apply up to a sale price of NIS 5,008,000 in 2026, a ceiling reported frozen through 2027 — this specific figure comes from a single source reviewed and is worth double-checking with an Israeli adviser before a specific sale. Where the exemption does not apply, gain is generally taxed at 25% of the real (inflation-adjusted) gain. For apartments bought before 2014, a linear calculation exempts the share of gain attributed to the period before January 1, 2014. Proposals to change that linear rule have been reported, so check the current law at the time of sale. Residential rent may be taxed under an exemption track (reported ceiling NIS 5,654 a month for 2024 and 2025), a flat 10% on gross rent, or ordinary rates.

Employment, equity compensation and remote work for a US employer

Source. The treaty sources personal-service income where the work is performed (Article 4(7)). Pay for days worked in Israel is foreign-source and can qualify for the exclusion; days worked in the United States are US-source.

RSUs and options. Multi-year equity is generally sourced by the share of workdays in each country over the vesting period. Israel generally taxes residents on equity income, and leaving mid-vesting can bring it into the exit rules.

Withholding. A US employer generally withholds US income tax unless foreign law requires foreign withholding, and may stop if you give it a statement such as Form 673. FICA generally continues for an American employer. Israeli payroll withholding is reported to apply regardless of where the employer is resident, so US employers should review Israeli registration and permanent-establishment risk.

State tax. Moving abroad does not automatically end US state tax residency — see our guide on state taxes after moving abroad.

Leaving Israel

Israeli exit tax. Section 100A of the Ordinance treats someone who ceases to be resident as having sold their assets. The tax can be paid immediately or deferred until actual sale, with the gain apportioned over the holding period; Israeli assets taxed on sale anyway are excluded.

US side. Leaving Israel does not change US filing. US expatriation tax applies only if you renounce citizenship or, as a long-term green card holder, end US residency. See our guide on the US exit tax.

Mistakes Americans commonly make in Israel

1. Assuming the 10-year oleh exemption also applies to US tax. It is Israeli only.
2. Assuming the old Israeli reporting exemption applies after becoming resident in 2026 or later.
3. Leaving keren hishtalmut or Israeli mutual funds off US returns.
4. Using the exclusion on self-employment income and believing it removes self-employment tax.
5. Paying US tax on US Social Security without checking Article 21 and the treaty residence rules.
6. Forgetting signature-authority accounts on the FBAR.
7. Repaying a shekel mortgage without tracking the dollar exchange gain.
8. Treating an Israeli private company as a corporation, or not, without checking the entity rules — if several years of filings need correcting, see our guide on the Streamlined Filing Compliance Procedures.

Checklist

Before moving: model US and Israeli tax for your income mix, including the 2026 olim and Bituach Leumi exemptions; get advice before opening Israeli funds or study funds.

First 90 days: register with the ITA and Bituach Leumi; confirm in writing any exemptions you claim; keep a day count from your first day in Israel; give a US employer Form 673 if appropriate, and check Israeli payroll.

Every year: file Form 1040 (with 1116 or 2555), the FBAR, and 8938, 3520, 8621 or 5471 where applicable; file the Israeli return and foreign income and asset reports if required.

Before leaving: value assets for the section 100A exit rules and decide whether to pay or defer; plan final-year residency dates under Israeli law and the treaty.

Frequently asked questions

Do I have to file US taxes if I live in Israel?

Generally yes, if gross income meets the threshold or self-employment earnings reach $400.

Does the US–Israel treaty stop double taxation?

Partly. The saving clause lets the US tax citizens, so relief comes mainly from the foreign tax credit.

Do olim pay US tax on income Israel exempts?

Yes. Israeli exemptions do not change US tax.

Is there a totalization agreement with Israel?

No. The SSA's list as of September 2026 does not include Israel.

Is my US Social Security taxable if I live in Israel?

Generally not, if you are resident in Israel under the treaty: Article 21 exempts it, and IRS Publication 915 lists Israel. Someone who keeps a permanent home in the United States should check the tie-breaker first.

Is a keren hishtalmut reportable to the IRS?

Often, though practitioners disagree on the form. Get a written position.

When to hire a professional

• Moving with significant assets or equity: a cross-border CPA or enrolled agent, plus an Israeli tax adviser (yo'etz mas) or Israeli CPA.
• Israeli pension, study or mutual funds: a US preparer experienced in foreign trust and PFIC reporting.
• Owning an Israeli company: a US international tax specialist and an Israeli accountant.
• Unfiled years or unreported accounts: a US tax attorney to review disclosure options — see our guide on the Streamlined Filing Compliance Procedures.
• Leaving Israel or giving up a green card: advisers in both countries.

Sources

Source	URL	Used for	Page date
IRS — United States income tax treaties A to Z	https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z	Treaty confirmation	Accessed 17-Oct-2026
US–Israel income tax convention, as amended (IRS)	https://www.irs.gov/pub/irs-trty/israel.pdf	Treaty text, articles cited	1975/1980/1993
IRS — Publication 915 (2025)	https://www.irs.gov/publications/p915	Israel listed for Social Security exemption	Confirmed 17-Oct-2026
26 CFR §301.7701-2 (via Cornell LII)	https://www.law.cornell.edu/cfr/text/26/301.7701-2	Public Limited Company per se	Confirmed 17-Oct-2026
eCFR — 26 CFR §301.7701-3	https://www.ecfr.gov/current/title-26/part-301/section-301.7701-3	Default entity classification	Accessed 17-Oct-2026
US Treasury — FATCA agreements table	https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act	Model 1 IGA dates (signed 2014, in force 2016)	Confirmed 17-Oct-2026
SSA — POMS GN 01701.005	https://secure.ssa.gov/poms.nsf/lnx/0201701005	No totalization agreement (31 countries, Israel absent)	17-Sep-2026
IRS — Publication 54; Publication 514	https://www.irs.gov/publications/p54	Filing rules, FEIE, FTC, SE tax	12/2025
IRS — Comparison of Form 8938 and FBAR requirements	https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements	FBAR and 8938 thresholds	Updated 19-Sep-2026
26 U.S.C. §121 (Cornell LII)	https://www.law.cornell.edu/uscode/text/26/121	Section 121 exclusion, no location limit	Accessed 17-Oct-2026
Quijano v. United States, 93 F.3d 26 (1st Cir. 1996)	https://caselaw.findlaw.com/us-1st-circuit/1121323.html	Currency gain on foreign mortgage	1996
eCFR — 26 CFR §301.6114-1	https://www.ecfr.gov/current/title-26/part-301/section-301.6114-1	Form 8833 waiver for Art. 21 income	Accessed 17-Oct-2026
PwC Worldwide Tax Summaries — Israel; Shibolet; Grant Thornton Israel; Herzog Fox & Neeman; S. Horowitz & Co.; Nefesh B'Nefesh; Jerusalem Post; Ynet; Meitar; BDO Israel; Doron Aharoni Law Office (secondary)	—	Issue-spotting only: residency reform bill, olim exemptions, Amendment 262, rates, real estate exemptions, exit tax	2022–2026

A note on scope: this guide is general information, not tax or legal advice. Whether a given fact pattern — a keren hishtalmut, an Israeli private company, a specific olim exemption — triggers the rules described here depends on your own situation. Get advice from a US preparer experienced with Forms 1116, 3520, 5471 and 8621 and an Israeli tax adviser before you rely on anything in this guide.