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Our expat tax specialists are well-versed in the unique requirements for US citizens or green card holders living in Israel.
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- Avoid double taxation
- Get tax credits and deductions
- Remain fully compliant
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Have you been wondering?
Although you are no longer a resident of the United States, as a US citizen you are required to report all sources of worldwide income to the IRS. This includes but is not limited to employee wages; interest and dividends (schedule B); self-employment income (Schedule C); capital gains and losses (Schedule D and Form 8949); rental real estate, royalties, partnership, S corporations, estates, trusts, REMICs and other supplemental income (Schedule E).
To answer this question, an examination of the US tax-treaty with your foreign country of residence is required. However, generally speaking, the country where the income is earned has first rights to taxation. In that case, you can either exclude your foreign earned income, or use your foreign taxes paid as a credit to offset your US tax liability.
Up to $105,900 is excludable for tax year 2019, and up to $107,600 for 2020. If filing a joint tax return with your spouse, then each spouse can exclude up to this amount.
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Filing US Taxes in Israel
If you’re an American expat living in Israel, you probably have questions about your U.S. tax responsibilities. Do you need to file? Will you have to pay taxes in both Israel and the U.S? What are the filing deadlines?
Let’s explore some of the most relevant tax issues for the Israeli-US expat.
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Tax Filing Obligations
US citizens and Lawful Permanent Residents (green card holders) are obligated to report all sources of worldwide income to the Internal Revenue Service of the United States, independent of whether or not they actually reside in the United States (excluding certain low income earning individuals). This means that if you are a US citizen living in Israel, you need to file an annual Form 1040 – individual income tax return – reporting all sources of income, including wages, interest, dividends, capital gains, partnership distributions, rental income, etc. and will be subject to US taxation.
In addition, there are other filing requirements that may apply if you fulfill certain conditions. The most common is the Foreign Bank Account Report (FBAR), a FinCEN information return. Others include Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations), Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts), and Form 8938 (Statement of Specified Foreign Financial Assets). These are filings that report required information, but generally do not result in the assessment and payment of tax.
Deadlines for Filing U.S. Taxes from Israel
As a US citizen living abroad, you are entitled to an automatic two-month extension to file your US tax return. This changes your filing deadline from April 15th to June 15th. Furthermore, you can apply to extend your filing deadline until October 15th; application for this must be made by June 15th. If more time is needed, an additional two-month discretionary extension can be requested, which will extend the filing due date to December 15th.
These extensions only extend your time to file, not your time to pay taxes due. Interest on taxes due begins to accrue on April 15th. However, the late-payment penalty will only apply if taxes are not paid by June 15th. In contrast, the late-filing penalty does not apply unless the tax return is filed after all valid extensions.
In regard to the FBAR, the deadline is April 15th. If you do not file by April 15th, your deadline is automatically extended until October 15th. There is no need to file for this extension.
Avoiding Double Taxation
As a resident of Israel you will also be subject to Israeli taxation on your world-wide income. No one wants to be taxed twice on the same income; US tax laws and the US-Israel tax treaty provide for several helpful ways to avoid double taxation.
Foreign Tax Credit
One of the most common and effective allowances for avoiding double taxation is the Foreign Tax Credit. Taxes paid to Israel on Israeli-sourced income can be used to offset US taxes due; this means that for every dollar of Israeli income tax paid, your US tax assessed is reduced by one dollar. Since Israeli tax rates are generally higher than US tax rates, a US citizen with Israeli-sourced income is often left with no US tax obligation at all. If you paid more tax to Israel than you are utilizing for the foreign tax credit, the excess foreign taxes can be carried forward for up to ten years as future credits. The foreign tax credit is limited to the percentage of total income that is foreign-sourced.
Furthermore, as per the US-Israel tax treaty, certain types of income sourced in the US can be re-sourced to Israel for foreign tax credit purposes, thereby allowing Israeli taxes paid to offset US taxes due. As per the treaty, US capital gains reported on Form 1099B and US pension income reported on Form 1099R can be treated as Israeli sourced income for the specific purpose of being able to utilize Israeli taxes paid as a credit to offset US taxes due. (In specific situations a portion of US sourced interest and dividend income may be re-sourced to Israel as well.)
Foreign Earned Income Exclusion
Another provision of the Internal Revenue Code, specifically aimed at the avoidance of double taxation, is the foreign earned income exclusion (FEIE). You can utilize the FEIE, also known as Section 911 election, to exclude the first $105,900 (in 2019) from U.S. taxable income, by demonstrating that you qualify for the exclusion based on either the physical presence test or the bona fide residence test. This exclusion applies only to earned income, like wages and self-employed business income, and not to passive income, like interest and dividends. Foreign taxes paid on income that is excluded via the FEIE are not eligible to be used for foreign tax credit purposes.
Israel Tax-Free events may give rise to US Tax liability Pension and Sabbatical leave contributions
Employer contributions to Israeli pension plans and sabbatical leave funds (keren hishtalmut) are not taxable in Israel in the year contributed; however, these contributions are taxable as wages in the US, since they do not qualify as eligible 401k contributions. The upside of this is that the principal portion of Israeli pension and sabbatical plans are not taxable on the US tax return upon withdrawal, as they were already effectively taxed in prior years. Only the income earned in the plan would be taxable for US purposes in the year of withdrawal.
PFICS
Investments in Passive Foreign Investment Companies (PFICs), eg keren ne’emanut (Israel mutual fund) can also trigger a US tax liability, even though no taxable event actually happened according to Israeli tax law.
Sale of Primary Residence
Another situation that very often triggers a large US income tax liability is the sale of one’s principal residence. In Israel, the sale of one’s principal residence is generally not taxed, or taxed minimally, whereas in the US, only $250,000 ($500,000 if married filing jointly) of the capital gain is excludable from taxable income and in order to qualify for the exclusion, the seller must have lived in the home for two out of the five years prior to sale. Moreover, if the property was being rented out, the “depreciation recapture” comes back to bite on the US tax return, resulting in a larger capital gain.
Net Investment Income Tax
All high-earning individuals with income from passive sources are subject to US net investment income tax (NIIT). This is a 3.8% flat tax assessed on passive income of individuals who earn more than $200,000 ($250,000 threshold for married filing jointly taxpayers), and it applies even to passive income from Israeli sources. Many Israeli residents in this situation are unpleasantly surprised by this tax, as the Israeli income tax they paid on their passive income cannot be used to offset the NIIT.
Self-Employed
Unfortunately, to date there is no totalization agreement between the United States and Israel. As such, US citizens who are self-employed in Israel will be subject to both the Israeli national insurance (bituach leumi) withholding and US FICA tax. This means double taxation by the social security systems of the two countries. As such, the self-employed setup is not ideal at all for a US citizen residing in Israel, as the result is the requirement to pay approximately 30% self-employment tax (15% US self-employment tax + 15% Israeli bituach leumi), in addition to Israeli income taxes.
In contrast, a salaried employee working for an Israeli employer and paid via an Israeli pay-slip is not subject to US self-employment tax on their wage income. This is why many Israeli residents prefer to run their business via an Israeli corporation instead of an Israeli sole proprietorship. In this way, they receive wages from the corporation and avoid the double self-employment taxation.
US Social Security Benefits Paid to Israel Residents
As per article 21 of the US-Israel tax treaty, US social security payments made to a resident of Israel are exempt from US taxation. So even though you may need to pay US social security tax on your Israel-sourced self-employment income, at least when you eventually receive your social security benefit distributions, they are not taxed by the US.
Election to Include Non-US Spouse on Taxpayer’s US Return
If a US citizen or green card holder is married to a spouse who is neither a citizen nor resident of the US, then the spouse’s income is not required to be reported to the IRS. That being said, one has the option to elect, via section 6013(g) election, to file jointly with the non-US spouse in order to take advantage of a higher standard deduction; in some situations, this can lower the overall tax liability. Another scenario where making this election is tax advantageous is when adding the spouse’s income to the return will increase eligibility for the “Additional Child Tax Credit Refunds” (Form 8812).
The above being said, the election is not advisable in most cases, as the results will often be worse than when filing alone. Once the election is made, all of the spouse’s worldwide income must be reported to the IRS. By not making the election, there exists an option of transferring ownership of income-producing assets to the non-US spouse, thereby decreasing the taxable income reportable to the IRS. Once the election is made, that possibility is lost. For more information see ELECTION TO TREAT NON-RESIDENT ALIEN SPOUSE AS A US RESIDENT (IRC 6013(g))
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Filing Israeli Taxes
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Taxation of Individuals in Israel
Taxation based on residency
If a person is a resident of Israel, their worldwide income will be subject to Israel taxation, whether or not they are an Israeli citizen.
For tax purposes, Israel defines a resident as an individual whose center of vital interests are most closely connected with Israel.
Generally, one will be considered a tax resident of Israel if either of the following applies:
- An individual spends 183 Days in Israel during any given calendar year (half of the tax year).
- An individual spends at least 30 days in the current tax year and 425 cumulative days in the current and two preceding tax years in Israel.
Even if one does not meet the above two tests, Israel can rule that a person’s family, economic and personal ties are closest to Israel and therefore his center of vital interests is Israel; thus being considered a deemed resident of Israel.
Filing an Israeli income tax return
Unlike the United States, in Israel most types of income have taxes withheld at source and as a result filing a tax return is less prevalent. For specific types of income that were subject to Israel tax withholding at source and do not exceed the below thresholds, there is no tax return filing obligation.
2020 filing thresholds:
Wages: 649,000 NIS
Rents/Exempt foreign income/Foreign pension: 337,000 NIS
Interest: 643,000 NIS
Proceeds from sale of securities: 2,522,000 NIS
If an individual has two sources of income from the list above, both of which do not exceed the threshold amount and were subject to tax withholding, he will not be required to file an income tax return. For an income amount above any mentioned threshold, an Israeli income tax return must be filed.
Self-employed individuals, esek patur or esek morsha, [SG1] must file Israeli income tax returns to report business income and expenses.
Passive income from investments held in foreign accounts or from foreign businesses also do not have Israel taxes withheld at source and a return must be filed. (See first ten years post-aliya filing exception).
Form 1301 is the tax return filed with the Israel Tax Authority. Upon processing, the Israel Tax Authority will send the taxpayer a tax assessment, shumat mas. Married filers will be assessed jointly but can request separate assessments, if need be.
Refund request
An individual can opt to file an income tax return and re-assess their tax liability even if they have no obligation to do so. In certain circumstances, a person may be eligible to file a short form, form 0135. This form is intended for taxpayers that do not have a requirement to file and need to reassess their tax liability because of financial expenses or charitable donations made to tax-deductible seif 46 not for profit organizations.
Tax rates
Earned income from either employment or business income is taxed at graduated rates ranging between 10-47% as per below table:
Annual income level (NIS) | 2020 tax rate |
0 – 75,960 | 10% |
75,961 -108,960 | 14% |
108,961 -174,960 | 20% |
174,961 – 243,120 | 31% |
243,121 – 505,920 | 35% |
over 505,921 | 47% |
Most passive income from interest, dividends, capital gains etc. are subject to flat rates ranging between 10-40%. Other passive income is generally taxed at graduated rates ranging between 31-47%; however, various exceptions may apply. Israeli residential rental income of up to 5,100 NIS per month for 2020 can be exempt from taxation. (See article regarding Israel real estat investments for a more detailed look at Israeli taxation of real property income.)
It is important to note that beginning in 2013, the Israel tax authority introduced an additional tax, mas yesef. This is a flat 3% tax on annual income amounts above 651,600 NIS.
Tax Credits
A person’s tax liability is reduced by credit points, zikuim. For tax year 2020, each credit point is worth 219 NIS per month.
- Personal credit points: All residents of Israel are entitled to personal monthly credit points. A man generally speaking receives 2.25 personal tax credit points (thereby reducing his tax by NIS 493/month). A woman receives 2.75 credit points, reducing her tax by NIS 602/month.)
- Credit points for children: Fathers are entitled to monthly credit points for children ages 5 and below. Mothers will receive credit points for every child under age 18. The credit points vary depending on the age of the child.
- Credit points for new immigrants: Income tax breaks are available for the first three and a half years after immigration as follows: For the first 18 months, new immigrants are entitled to 3 additional monthly credit points, for a total tax break of up to 11,826 NIS. For the next twelve months, new immigrants are entitled to 2 additional monthly credit points for a total tax break of up to 5,256 NIS. For the last twelve months of the three and a half years, new immigrants are entitled to 1 additional monthly credit point for a total potential tax break of up to 2,628 NIS.
Credit points are also available for individuals who are finishing a degree, in active army service/sheirut leumi, divorced, responsible for the care of a special needs or permanently disabled child or residents of certain development cities.
Other Deductions
Donations to recognized Israel public charities, seif 46 organizations, can also help to lower an individual’s tax liability. For every 10 NIS donated, a person’s tax bill will be lowered by 3.5 NIS. Additional deductions could include pension payments, accounting fees, investment management fees or other fees directly related to taxable income.
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Israel US Tax-Treaty Articles
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Israel real estate investments: Potential US tax obligation?!?
Given the lure of the historical rising value of Israel property, it is important to consider that Israel real estate investments could have potential US tax ramifications. The United States taxes its citizens on income earned worldwide. Profit from rental or sale of real property located outside the United States is no exception and is subject to US taxation. The income or loss from rents or sale of Israeli property is thus included on a US citizen’s annual income tax return. According to the US-Israel tax treaty, Israel has first rights to tax income related to Israel real property. Therefore, taxes paid to Israel can be used as a credit to directly offset a person’s US tax liability. However, not always do Israeli taxes paid cover US taxes due; resulting in a potential US tax liability.
Rental income: For US purposes, real property rentals are accounted for like a business. Meaning, an individual allowed to deduct all ordinary and necessary expenses incurred to maintain his real estate rental activity. A major expense is usually depreciation which is the mechanism for recovering the cost of the property over its expected life. US law mandates that depreciation must be taken once the property is ready and available for rent. The cost of Israel property compared to rents received is generally very high. And therefore very often a person’s net rental income from the activity will be nil. Not always is this to the benefit of the taxpayer. (See sale of property, below). In a situation where the rental activity results in a net gain, the profits are taxed at ordinary graduated income rates. Which means, depending on your tax bracket, you could be paying between 10-37% tax on net profit from rental activity.
The Israel Tax Authorities allow taxpayers three different methods to account for rental property activity. Each year a person can choose which method would be most tax advantageous for him and account accordingly. If a person has multiple properties he can choose a different method for each property. The first method parallels the US method above and treats the activity as a normal business activity, taxed at ordinary graduated income tax rates. However, one major difference is that depreciation is lower for Israel purposes. *** And the tax rates vary between 10-47%. The second method is similar to the first method except that if the gross rental monthly income is 5,030 NIS or less (total for all rental properties owned), it is exempt from Israeli taxation and reporting. If gross monthly rental income is more than 5,030 NIS, the excluded portion is reduced by the excess amount and the resulting gain is taxed at no less than 31%. **** The third and very popular method is to account only for gross rental income. No expenses are allowed as deductions. The gross amount received is taxed at a flat 10% rate and no tax credits can be applied.
As you can see from above, because of the varying methods of taxation there could be situations where taxes paid to Israel will not offset parallel US taxes. For example, this could come into play with older/inherited property investments. Generally speaking, depreciation expense would be very low or non-existent for these properties and other expenses may be minimal. For US purposes, a high earning individual could be left with a 37% tax bill on net income earned from these properties. Whereas, for Israel purposes he could be taxed at a 10% rate and will thereby be left with an insufficient amount of Israeli taxes paid to offset the US liability.
Sale of Apartment: Another situation which often times may lead to a US tax obligation, is when the property is ultimately sold. Depreciation of a property decreases the cost basis of the property and thus results in a higher recognized gain when the property is sold. Remember, the US tax code forces a person to depreciate their rental property. Therefore, if for Israel purposes a person consistently chooses to tax his property at the 10% flat rate or his income was completely exempt from Israeli taxation, the gain for US purposes will be considerably higher than for Israel purposes. Additionally, the IRS imposes depreciation recapture which taxes the portion of the gain that was allowed as a depreciation expense as ordinary income. Thus, for US purposes a large portion of the gain will be taxed at regular 10-37% rates instead of the 0-20% preferential rates for gains on sale of long term capital assets. Another variable which often gives rise to discrepancies between US and Israel tax amounts is that for Israel purposes, if a person sells his rental property and he owns no other property, he will be exempt from tax upon sale. However, for US purposes, if he did not live in the house for two out of the five years prior to sale, the sale is fully taxable. *****
Taking all of the above into consideration, we highly advise consulting with a US/Israel tax accountant before deciding to invest in Israel real estate.
*This article specifically addresses residential real property. Commercial real estate investment is out of the scope of this article.
** The recovery period for foreign properties follows MACRS, Alternative Depreciation System which is 30 or 40 years depending on when the property was purchased. The depreciable portion of the property is usually not the entire amount paid for the property. The amount paid for the property usually includes both the cost of the land on which the property is built and the cost of the building structure. Amounts paid for land are not depreciable.
***The useful life of a property for Israel purposes is 50 years.
**** Expense amounts incurred must be apportioned to the taxable and exempt income amounts. Only the expenses allocated to the taxable portion can be utilized to offset the gain.
*****For situations where this is not the sole property owned by the individual, Israeli taxes could be as high as 25%. However, there are various laws and circumstances which could help to reduce the Israeli tax liability and an Israeli attorney must be consulted.
Israel Taxation of US Sources Income for Recent Residents and Beyond
Income exempt from tax during the first ten years post-presidency
As of September 16, 2008, newly landed immigrants are exempt from Israeli income tax for the first ten years on both passive and earned income from sources outside of Israel.
Earned Income
Earned income is generated by performing services. It is important to note, that income from a US employer does not necessarily mean that the income is sourced in the United States and exempt from Israel tax during the first ten years post-Aliyah. In order to be considered eligible income, the income must be earned while the person who was performing the services was physically located outside of Israel. It does not matter where the client or employer is located or where the funds are coming from initially. Therefore, if you have a home office in Israel and continue to service your prior employer or clients in the US, this income will be 100% subject to Israeli taxation even during the first 10 years after making Aliyah.
Recently, the Israel Tax Authorities added an additional caveat to this exception. In order for the income to be considered earned abroad and not be subject to Israeli tax, the individual must spend at least 60 days of the tax year working outside of Israel. If a person works outside of Israel for less than 60 days, none of the income is exempt from taxation during the first ten years post-Aliyah.
Passive Income
Passive income is not generated by performing services and is not linked to the performance of services. It includes interest, dividends, capital gains, rental income, pensions and royalties. As long as the assets generating this passive income are located outside of Israel, this will be considered passive income from outside of Israel and exempt from Israeli income tax for the first 10 years after making Aliyah.
Work performed in Israel for US Employers of US Clients
It is very common for an oleh chadash to continue working for a US employer; having a tax effective system in place is essential. As mentioned above, since the US citizen will be performing the services while physically present in Israel he not only has to report the income on his annual US income tax return but must also report this income to the Israel tax authorities.
The US-Israel tax treaty provides tax exemptions and deductions to eliminate the double income taxation. Israel, however, does not have a totalization agreement with the US to alleviate the double taxation with respect to social security taxes. Therefore, the only element for the most part of double taxation will be related to US self-employment tax and Israeli national insurance, bituach leumi. For the US citizen residing and performing the services while physically in Israel, the Israeli bituach leumi will have to be paid on this income and structuring oneself in a way where the US self-employment taxes are avoided is the key to eliminating the double tax burden.
Receipt of W-2 From US Employer
Social security tax– The employer will pay out of their own pocket on behalf of the employee approximately 7 ½% Social Security tax and Medicare, and the employee will have approximately 7 ½% withheld from their paycheck for Social Security and Medicare.
Income tax withholding- The taxpayer should notify his employer that as a resident of Israel, performing the services while physically in Israel he is first subject to Israeli income tax on this income and will likely not owe any US income tax, therefore the employer should stop withholding any federal income tax on behalf of the employee. (If more than 60 days of the work is performed while physically in the USA a person may be subject to US income tax and exempt from Israel taxation for the first 10 years after making Aliyah.)
Filing an Israeli tax return– A person will be required to file an annual personal Israeli income tax return to report this income and will be subject to Israeli income tax and the Israeli equivalent of Social Security tax, bituach leumi, on this income. The amount of Israeli bituach leumi that will need to be paid varies depending on the levels of income but very often it ends up being an effective rate of approximately 15% for many taxpayers.
Double taxation– There is an element of double taxation as it relates to Social Security tax and bituach leumi. This scenario is extremely limited with solutions.
Receipt of 1099MISC From US Employer
Social security tax- This income will be reported as business income, on schedule C of the personal annual federal income tax return and will be subject to approximately 15% US self-employment tax.
Filing an Israeli tax return– A file will need to be opened with the Israeli income tax authorities. The individual will need to file a personal annual Israeli income tax return to report this income. Israel has first rights to the income tax and the foreign tax credit and/or the foreign earned income exclusion will be able to be utilized on the related US income tax return to avoid double taxation from income tax.
Double taxation- The Israeli equivalent of Social Security tax, bituach leumi, will be required to be paid on this income to the Israeli tax authorities. This situation results in double taxation from the US Social Security and Israeli bituach leumi vantage point. Therefore, this set up is not an ideal set up for a US citizen residing in Israel since they will end up paying approximately 30% in social security taxes (15% US self-employment tax plus 15% Israeli bituach leumi), even before paying any income tax to Israel. There are solutions to this problem in which the individual will still have to pay Israeli bituach leumi but will not having to pay any US self-employment tax.
It is important to note that a salaried employee in Israel who is working for an Israeli employer getting paid with an Israeli paystub is not subject to any US self-employment or Social Security tax on this income.
Sole Proprietorship Performing Services for Multiple US Clients while located in Israel
Social security tax- This person is considered self-employed for both US and Israeli tax purposes. The business income and expenses must be reported on schedule C annually and will be subject to approximately 15% in US self-employment tax.
Filing an Israeli tax return– The business must be registered with Israeli income tax authorities and an Israeli annual personal income tax return must be filed. Israeli income tax and bituach leumi will be calculated on the income net of expenses.
Double taxation– As discussed, there should be no income tax double taxation but the income will be subject to both Social Security tax and Israeli bituach leumi payments. A common solution to avoid the double taxation in this scenario is to run the business through an Israeli Corporation and to withdraw the share of profits as a monthly salary via Israeli paystubs. Since the taxpayer will now be considered a salaried employee of an Israeli company/Israeli employer, he will no longer be subject to any US self-employment tax or US Social Security tax on this income hence avoiding double taxation.
In addition to avoiding the double taxation, there are also other benefits to opening up and running a business through an Israeli Corporation.
Israeli Taxation of US Income after Ten Year Grace Period Interest, Dividends and Rental Income
According to the US-Israel tax treaty, interest, dividends, and rental income from property in the US are first subject to US income tax. Taxes paid to the United States are utilized as credits on the Israeli tax return to offset Israeli income tax on the same income. That being said, the United States tax cannot exceed 17.5% of interest income and 25% of most dividend payments.
Capital Gains
Capital gains are first taxed in the country where the one selling the stock is located. Therefore, a US citizen residing in Israel selling US corporate shares will first pay taxes to Israel (normally at a flat 25% rate). Israeli income taxes paid will be utilized as a foreign tax credit to offset the US taxes owed on this income.
Many new immigrants to Israel are often under the impression that they should sell their US stocks within the ten-year tax holiday so as not to subject the capital gains to Israeli income taxation. However, this is a common misunderstanding.
The Israeli tax code specifically addresses this situation and gives clear guidance that only the percentage of appreciation in the stock that happened after the 10-year holiday will be subject to Israeli income tax. The total amount of capital gain is divided by the number of years that the stock was held and only the percentage of the holding period that was post the 10-year tax holiday will be subject to Israeli income tax. The remainder will be exempt from Israeli taxation even though the capital gain was triggered after the 10-year holiday passed.
US Social Security
The US-Israel tax treaty specifically states that a US citizen who is residing in Israel will be exempt from both US and Israeli income tax on Social Security benefits from the United States.
You can continue to receive their Social Security payments even after moving to Israel. You can even request that the payments be deposited into a local Israeli bank. You are also able to apply to receive the Social Security payments online if you retire while residing in Israel. In addition to going through the online application process, someone from Social Security will usually call the applicants to verify their identification before finalizing and approving the application. In some cases, the applicants are requested to go to the consulate for verification.
As per the Windfall Elimination Provision (WEP), if a person receives benefits from a non-covered pension which is any pension paid from an employer who does not withhold social security taxes, the monthly social security payment will be reduced. The difference between the regular monthly benefit and the monthly benefit after taking WEP into consideration cannot exceed half of the monthly non-covered pension amount.
In the past, WEP applied to individuals receiving the Israeli equivalent of US Social Security retirement income from bituach leumi. In a class action suit filed against the US government in 2015, the US government lost and WEP no longer applies to recipients of bituach leumi benefits.
Pensions
Most Olim have spent many years working in the US prior to moving to Israel and have been paying into various US pension plans over the years. The most common types of pensions are either traditional IRAs or 401(k) plans. Both of these types of pensions are made from pre-tax contributions and are therefore subject to full US income taxation upon withdrawal.
After the ten year-grace period, Israel has first rights to taxation of pension income. The Israeli tax code has a special rule in Seif 9(3) which states that taxes will need to be paid to Israel first but only at the maximum rates that would have been due to the United States on the same income, if the income was taxed in a bubble. Meaning the amount of tax will not exceed that amount that would have been otherwise owed to the US assuming that the pension income was the taxpayer’s only income.
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OUR FEES
Our Fees for filing US taxes in Israel:
Please note prices do not include VAT.
Personal Tax Returns
Our base fee of ₪1,050 includes the preparation of the following forms and schedules:
- Form 1040 (individual tax return)
- Up to two Salaries
- Up to two bank and brokerage transactions
- Child Tax Credits
- Form 1116 (foreign Tax Credit)
- Form 2555 (foreign earned income exclusion)
- Schedule A (Itemized deductions)
- Up to two K-1s
Additional forms and schedules
| Each additional salary | ₪60 |
| Each additional bank or brokerage transaction | ₪60 |
| Each additional K-1 | ₪60 |
| Business income | ₪175 |
| Rental Property | ₪175 |
| Form 8833 (Treaty-Based Position) | ₪175 |
| Form 8863 (Refundable tuition credit) | ₪175 |
| Form 8814 (kiddie tax) | ₪175 |
| Form 8621 (PFIC reporting) | ₪550 per Account |
| Form 4797 (Sale of business and property) | ₪450 |
| Form 8379 (Injured Spouse Claim) | ₪275 |
| MFS Tax Return (Married Filing Separate additional tax return) | ₪275 |
Other Fees
| State Tax Return | ₪350 |
| Dual Status Tax Return | Starting from ₪1,550 |
| Form 5472 | ₪850 |
| Form 1040x Amended Tax Return | ₪1,275 |
| Tax planning or/ and Consultations | ₪650 per hour |
| Facilitating tax payments (each time) | ₪115 |
Delinquent Filing- Streamlined Procedure
Our flat fee of ₪5,400 includes:
- 3 US Federal Income Tax Returns
- 6 FBARs
- Statement of Non-Willful Conduct
FBAR Form 114
| Up to 5 accounts | ₪325 |
| 6-10 accounts | ₪525 |
| 11-20 accounts | ₪675 |
FATCA Form 8938
| Up to 5 accounts | ₪450 |
| 6-10 accounts | ₪750 |
| 11-20 accounts | ₪1,100 |
| Form 5471 – Information return for US officers that needs to be filed by a citizen who is a director of, or shareholder in a foreign corporation. | ₪990 |
| Section 962 Election | ₪700 |
| Forms 3520/3520A – Returns to report transactions with foreign trusts, ownership of foreign trusts and receipts of large gifts from foreign persons. | ₪1,350 |
| Form 8865 – Return for partners of certain foreign partnerships. | ₪950 |
| Form 8858 – Information return for owners of foreign disregarded entities and foreign branches. | ₪950 |
Corporate Tax Returns
| Form 1120 – Corporation Income Tax Return | ₪2700 – ₪5500 |
| Form 1120s – Income Tax Return for an S Corporation | ₪2700 – ₪3900 |
| Form 1120F – Income Tax Return of a Foreign Corporation | ₪2700 – ₪5500 |
| Form 1065 – Return of Partnership income | ₪2340 – ₪5500 |
| EIN and Form 2553, Election by a Small Business Corporation | ₪550 |
| Form 1065 – Return of Partnership income | ₪650 – ₪1500 |
| 990EZ – Not-for-profit Tax Return | From ₪1290 |
| 990- Not-for-profit Tax Return | From ₪3200 |
| Bookkeeping | ₪375 per hour |
| Audited Financial Statements | Contact us for a price quote |
US Tax Returns for individuals/ single member LLC’s
| Form 1040NR Non-Resident Federal Tax return, including up to two K-1s | ₪1,025 |
| Each additional K-1 | ₪55 |
| Schedule E (Rental Property) | ₪165 |
| Form 5472 for disregarded entities | ₪540 |
| State Tax Return | ₪345 |
| Each additional State Tax Return | ₪160 |
US Tax Returns for Partnership (Multi Member LLC’s)
| Form 1065 – Federal Tax return of Partnership income | ₪990 |
| State Tax Return of Partnership income | ₪270 |
| Form 8805 and 8804 | ₪160 per member |
| Form 8813 (Late penalties will be assessed if proper tax withholding was omitted) | ₪540 |
| Form 1040NR Non-Resident Federal Tax return (includes Form 1040 and 2 K-1’s) X2 | ₪1,080 |
| Each additional 1040NR | ₪540 |
| Each additional K-1 | ₪55 |
| Schedule E (Rental Property) | ₪165 |
| State tax return X2 | ₪450 |
| Each additional State return | ₪165 |
| Form W-7 ITIN Application | ₪450 |
| Form W-7 ITIN Application alone when a tax return is not prepared by us | ₪250 |
IRS Audit Representation
| Insurance Coverage plan for Audit and IRS Correspondence (Includes Tax court) | ₪275 |
| IRS ID verification call | ₪480 |
| TAS | ₪775 |
| Uncollectables | ₪1,960 |
| Tracking lost checks | ₪625 |
| First time penalty abatement request | ₪525 |
| Reasonable cause penalty abatement request | ₪650-₪1,295 |
| Appealing timely fling of return | ₪625 |
| Responding to IRS correspondence | ₪625 |
| Audit | ₪2,160 |
| Tax court | ₪1,575 |
| Offer in compromise doubt as to liability/ audit reconsideration | ₪2,900 |
Our duty is to prepare the forms based on information provided to us by the client.
We take no responsibility as to the accuracy of the information reported on the forms.
Our tax preparation fees are due upon completion of our work regardless of tax filing outcome.
They do not include possible follow up work, such as future IRS communications or audits.
Such follow up work will be billed separately.
All fees are in US dollars.
Our dedicated tax experts are experienced with the preparation of all the US tax forms. We will evaluate your unique tax situation and advise which forms apply to you.,
Our Fees for filing Israeli Taxes
Following is a list of services provided including the estimated fee for each service (all prices are before Maam):
- Opening File:
| a) Opening file for Osek Morshe /Osek Patur | ₪1,200 |
| b) Opening file in Mas Hachnasa only | ₪1,000 |
| c) Opening file without a Teudat Zehut | ₪450 per hour |
- Bookkeeping:
| Monthly Bookkeeping – 450 | ₪800 a month |
| Additional bookkeeping services | ₪150 per hour |
- Salary Preparing:
| Salary Preparing | Starting at ₪350 a month for the first tlush. ₪100 for every additional worker |
- Reports:
| a) Annual Personal 1301 | Minimum ₪1,800 depending on work involved |
| b) Hatzharat Hon if relevant | ₪1,200 – ₪2,500 depending on the amount of work/ assets involved |
| c) Certificates for bank or insurance etc | Minimum ₪225 / ₪450 per hour. |
| d) Any other tax services we provide (for example consulting, Bituach Leumi or other dealings required by tax authorities) | Will be charged at an hourly rate of ₪450 |
Once an engagement letter is approved, the client will be obligated to pay for the time spent on their file even in the event that the related tax file is not opened, or the related tax return is not filed at our normal hourly rates of 450 NIS per hour.
About Us
Why Expat Tax CPAs?
”
Lila Amireh
US Expat
”
Emanuel Grunwald
US Expat
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Sara Leah Weisenberg
US Expat
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