US Expat Taxes In Israel
Tax Insights for U.S. Expats in Israel
Navigating tax obligations is crucial for U.S. expats in Israel. While Israel taxes residents on worldwide income, non-residents are taxed only on Israeli-sourced income. Understanding these nuances ensures compliance with both U.S. and Israeli tax laws.
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Expat Tax Deadline
For U.S. expats, the automatic tax filing extension deadline is June 16th in 2025. If more time is needed, filing Form 4868 before this date extends the deadline to October 15th. The FBAR must also be submitted by October 15th. Certain special cases may qualify for an additional extension until December 15th.
Understanding Taxes in Israel for Foreigners
Expats in Israel should be aware that Israeli residents are taxed on their global income, whereas non-residents are taxed solely on income earned within Israel. It’s essential to determine your residency status to understand your tax liabilities.
Tax Requirements
Residency Status
Israeli residents are taxed on worldwide income; non-residents are taxed only on Israeli-sourced income. Residency is typically determined by the number of days spent in Israel.
U.S. Federal Tax Return (Form 1040)
U.S. citizens residing in Israel must file an annual U.S. tax return, reporting worldwide income.
Foreign Bank Account Report (FBAR)
If the aggregate value of foreign financial accounts exceeds $10,000 at any time during the year, expats must file FinCEN Form 114.
Foreign Earned Income Exclusion (FEIE)
Eligible expats can exclude up to $126,500 (for 2024) of foreign-earned income from U.S. taxation by meeting specific residency tests.
Foreign Tax Credit (FTC)
Allows U.S. expats to offset taxes paid to Israel against their U.S. tax liability, preventing double taxation.
Self-Employment Tax
U.S. expats who are self-employed in Israel may be subject to both Israeli National Insurance (Bituach Leumi) and U.S. self-employment tax.
Value-Added Tax (VAT)
Israel imposes a 17% VAT on most goods and services.
Tax Treaty
The U.S. and Israel have a tax treaty to prevent double taxation and provide clarity on tax matters.
Reporting Deadlines
Israeli tax returns are typically due by April 30th of the following year. U.S. tax returns for expats are due June 15th, with an automatic extension available.
Tax Facts for U.S. Expats in Israel
Understanding the tax landscape is vital for U.S. expats in Israel. Here are some essential points:
Residency Determines Taxation
Residents are taxed on global income; non-residents on Israeli income only.
U.S. Tax Obligations Remain
American expats must file U.S. tax returns, reporting worldwide income.
Social Security Contributions
Self-employed expats may owe contributions to both Israeli and U.S. systems.
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Have questions about your U.S. expat state taxes? We’re here to help. Below are answers to some common queries we encounter from expats around the world.
How does Israel determine tax residency?
Residency is generally based on the number of days spent in Israel: 183 days in the current year or 30 days in the current year and 425 days over the current and preceding two years.
Are U.S. expats in Israel subject to Israeli taxes?
Yes, if considered Israeli residents, they are taxed on worldwide income. Non-residents are taxed only on Israeli-sourced income.
Do U.S. expats in Israel need to file U.S. tax returns?
Yes, U.S. citizens must report their global income to the IRS annually, regardless of residence.
What is the VAT rate in Israel?
Israel imposes a 17% Value-Added Tax on most goods and services.
Is there a tax treaty between the U.S. and Israel?
Yes, the U.S. and Israel have a tax treaty to prevent double taxation and clarify tax obligations.
How can U.S. expats in Israel avoid double taxation?
By utilizing the Foreign Tax Credit and the U.S.-Israel tax treaty, expats can offset taxes paid in Israel against their U.S. tax liability.
Still have questions? Contact us today to get expert guidance on all your U.S. expat state taxes.
