Most Americans in Israel are salaried, have their tax withheld every month, and never file an Israeli return. That makes the US return feel like paperwork. For a lot of families it’s actually where money is left on the table: pick the wrong method and you give up a refundable child tax credit worth thousands of dollars, and the savings products everyone here is sold need careful handling on the US side.
Do Americans in Israel still file a US return?
Yes, every year your gross worldwide income reaches the filing threshold. For 2025 that’s $15,750 if you’re single and under 65, $400 of net self-employment income if you’re an atzmai, and just $5 if you’re married to an Israeli and file separately. That last one catches a lot of olim. Income you later exclude or offset with credits still counts toward the threshold.
Both countries run on the calendar year, so your Form 106 (the annual salary statement from your employer) lines up with the 1040. The US dates you need:
- 1
15 April 2026: US tax payment due
You can file later from abroad, but interest runs on anything unpaid from this date.
- 2
15 June 2026: US return due for Americans abroad
Automatic if you live outside the US on 15 April. Attach a statement saying you qualify.
- 3
15 October 2026: extended deadline, and the FBAR
File Form 4868 by 15 June to get here. The FBAR is due 15 April but extends automatically to the same date.
Our US expat tax guide covers the 1040 itself. The rest of this page is about Israel.
Do I have to file an Israeli return as well?
Usually not, if your only income is a salary taxed at source. Israel expects an annual report (doch shnati) from the self-employed, from people with rental or investment income that wasn’t fully taxed at source, and from high earners, and plenty of salaried people file one voluntarily to claim credit points their employer missed. Your Israeli accountant can tell you if you’re required to. On the US side, the doch shnati matters mainly because it shows the final Israeli tax figure we’ll credit.
How much tax does Israel take, and what does the IRS credit?
Israeli income tax is charged on each person’s income separately, not jointly, at these 2025 rates:
| Annual income (2025) | Rate |
|---|---|
| Up to ₪84,120 | 10% |
| ₪84,121 to ₪120,720 | 14% |
| ₪120,721 to ₪193,800 | 20% |
| ₪193,801 to ₪269,280 | 31% |
| ₪269,281 to ₪560,280 | 35% |
| Over ₪560,280 | 47% |
| Surtax on income over ₪721,560 | +3% (a further 2% on capital income) |
Against that you get credit points (nekudot zikui), each worth ₪242 a month in 2025. Every resident has at least 2.25; children, new-immigrant status and some degrees add more. All of that income tax, surtax included, is creditable on Form 1116.
Bituach Leumi and health tax are a separate matter. An employee pays about 4.27% on the first ₪7,522 a month and roughly 12% above it, up to a ceiling of ₪50,695 a month. Neither is among the Israeli taxes the treaty covers. A few preparers credit them anyway. We don’t, and for an employee it rarely changes the answer, because income tax alone usually exceeds the US tax on the same pay.
No totalization agreement: what it means if you’re self-employed in Israel
The US has social security agreements with about 30 countries. Israel isn’t one of them. If you work for an Israeli employer, you’re in Bituach Leumi and outside US Social Security, so this mostly doesn’t touch you. If you’re an osek patur or osek murshe, or you freelance for American clients from Israel, it does.
Freelancers in Israel pay social tax twice
A self-employed American in Israel owes Bituach Leumi on the business profit and also 15.3% US self-employment tax on the same profit, filed on Schedule SE. The foreign earned income exclusion doesn’t remove self-employment tax, and the foreign tax credit can’t be used against it. Setting up an Israeli company and taking a salary sometimes changes this; talk to us and your Israeli accountant before you do it.
Foreign tax credit or FEIE: which works in Israel?
For most salaried people in Israel our default is the foreign tax credit. Israeli rates climb faster than US ones, so above a modest salary the Israeli tax you pay is more than the US tax on the same income. The credit takes the US bill to zero and the excess carries forward ten years.
The bigger reason is children. If you claim the foreign earned income exclusion you can’t take the refundable part of the US child tax credit. For 2025 the credit is $2,200 per qualifying child, of which up to $1,700 can be paid to you even when you owe nothing. A family with three children on the FEIE can be giving up more than $5,000 a year. Each child needs a Social Security number by the due date of the return.
The FEIE (Form 2555) excludes up to $130,000 of 2025 foreign earnings if you pass the bona fide residence or physical presence test. It still suits some people, mostly single olim in their first years, when extra credit points push Israeli tax very low. The housing exclusion adds rent and utilities above the $20,800 base, up to limits set in IRS Notice 2025-16: $49,000 for Jerusalem, $50,800 for Tel Aviv and $55,300 for Beer Sheva. Elsewhere the default limit of $39,000 applies.
Say you’re a family of four in Modi’in on ₪240,000
Take the Cohens, both US citizens, who made aliyah in 2023 with two children under 17. One parent earns ₪240,000 in 2025, about $69,545 at the IRS rate. The other stays home.
After credit points and the credit for pension contributions, Israeli income tax comes to roughly ₪33,000, or about $9,560.
On a joint US return, $69,545 less the $31,500 standard deduction leaves $38,045 taxable and about $4,090 of tax. The foreign tax credit wipes that out and carries about $5,470 forward. With no tax left, the child tax credit becomes refundable: $3,400 comes back to them. On the FEIE they’d also owe nothing, but the $3,400 is gone. We’d file them on the credit.
Illustrative, rounded figures.
Say you’re single in Tel Aviv on ₪900,000
Take Noa, a US citizen working for a Tel Aviv tech company on ₪900,000 in 2025, about $260,794. Her top slice is taxed at 47% plus the 3% surtax, and after credit points her Israeli income tax is roughly ₪310,000, or $89,800. Bituach Leumi and health tax come on top.
Her US tax before credits is about $55,500. The foreign tax credit takes it to $0 and carries forward roughly $34,000, which matters when her equity starts paying out. On the FEIE, $130,000 is excluded but the rest is taxed at her top US rates, about $31,400 before credits, so she’d need Form 1116 anyway and would give up most of the carryforward.
Illustrative, rounded figures. A real return uses her Form 106.
Noa’s case has one more wrinkle common in Israeli tech: options and RSUs under the section 102 trustee route. Israel taxes the gain at 25% when the shares are sold out of the trust after the holding period. The US usually taxes options at exercise and RSUs at vesting, as wages. Same income, different years, different rates. The carryforward is what bridges the gap, which is another reason we keep high earners on the credit.
I made aliyah. What does the ten-year exemption change for the IRS?
For Israel, a lot. New immigrants and veteran returning residents (generally ten years or more abroad) pay no Israeli tax on foreign-source income for their first ten years: US rent, dividends from a US brokerage account, IRA and 401(k) withdrawals. For the IRS, nothing. That income stays fully taxable on your 1040, and because Israel didn’t tax it there’s no credit to offset it.
Two things people get wrong. Salary for work you do while living in Israel is Israeli-source even if a US company pays it into a US account, so remote work isn’t covered by the exemption. And the reporting side has changed: anyone who becomes an Israeli resident on or after 1 January 2026 keeps the ten-year tax exemption but loses the old exemption from reporting foreign income and assets to the Israel Tax Authority. If you arrived before then, the old rules still apply to you.
What happens to my keren hishtalmut and Israeli pension?
This is where the law is honestly unsettled. There’s no IRS guidance on the keren hishtalmut (study fund), and practitioners treat it in quite different ways: some as a foreign grantor trust with Forms 3520 and 3520-A, some as a fund holding PFICs, some as an ordinary taxable savings account.
Our lean is the last. The employer’s contributions are income on your 1040 in the year they’re made, the yearly growth is reported as it accrues, and the account goes on the FBAR and Form 8938. It costs a little tax each year, but the US basis it builds means the withdrawal after six years, tax-free in Israel, is close to tax-free for the IRS too. We’ll also tell you if your fund’s investment track changes the picture.
The keren pensia and kupat gemel le’tagmulim are closer to a conventional employer pension, and we treat them that way: contributions aren’t deductible on the 1040, growth is deferred, and payments in retirement are taxed by the US with credit for any Israeli tax. They also go on the FBAR and Form 8938.
Why Israeli funds are a problem on a US return
Israeli banks and investment houses steer savers into kranot ne’emanot (mutual funds) and ETFs listed on the Tel Aviv Stock Exchange. For US tax, every one of those is a Passive Foreign Investment Company (PFIC). Each needs Form 8621 every year, and without an election a sale is taxed at the top US rate for every year you held it, plus an interest charge.
What we’d hold instead
Individual Israeli or US shares are not PFICs, and neither is cash in a pikadon. If you already own Israeli funds, put them on Form 8621 now and decide on a mark-to-market election deliberately rather than letting the default rules run. Some Israeli banks restrict what US customers can buy, which by accident keeps a few people out of trouble.
What the US–Israel tax treaty does for you
Like every US treaty, it has a saving clause (Article 6(3)) that lets the US tax its citizens as if the treaty didn’t exist, so most of its benefits don’t reach you. The exceptions that matter to readers here are two.
US Social Security paid to someone living in Israel is exempt in both countries under Article 21. If you retire to Israel on Social Security, that income drops off your 1040. Israeli Bituach Leumi pensions paid to you as an Israeli resident aren’t covered by that article, so the US taxes them.
Israeli charities are deductible under Article 15-A, up to 25% of your adjusted gross income from Israeli sources, as long as the organisation would qualify if it were American. You have to itemize, so it mostly helps larger donors.
Beyond those, the treaty confirms the foreign tax credit for Israeli income tax in Article 26. Its list of covered taxes doesn’t include national insurance, which is why we don’t credit Bituach Leumi.
Reporting your Israeli bank accounts
If your non-US accounts together topped $10,000 at any point in 2025, you file an FBAR. That catches almost everyone: your checking account at Leumi, Hapoalim or Discount, a pikadon, a securities account, the keren hishtalmut and any account you can sign on, including a parent’s. Form 8938 covers the same accounts once you pass $200,000 at year end or $300,000 at any time ($400,000 / $600,000 if married filing jointly).
Israel has a FATCA agreement with the US, so Israeli banks ask for a W-9 and report US customers’ accounts to the IRS through the Israel Tax Authority. The FBAR guide covers how to count balances and what the penalties look like.
Behind on US filing from Israel?
Many Americans in Israel find out late: children born to an American parent, olim who assumed Israeli tax was the end of it, people who came for a year and stayed twenty. If it wasn’t willful, the Streamlined Foreign Offshore Procedures let you file three years of returns and six years of FBARs with no penalty, and on an Israeli salary the tax due is usually small or zero. Families can sometimes claim the refundable child tax credit on the catch-up returns. Our Streamlined guide explains who qualifies. If you’re thinking of moving back, read the state tax guide first.
What we’d do for you
We start with your Form 106 and any doch shnati, run the credit and the exclusion on your real numbers, and claim every dollar of child tax credit you’re owed. Every Israeli account goes on the FBAR, and if there’s a keren hishtalmut or Israeli funds, we’ll tell you plainly how we’re treating them and why. See expat pricing for what’s included.