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Where does an American living in Israel have to submit taxes?

I can think of three possibilities*:

  • Most/all taxes are filed in the US
  • Most/all taxes are filed in Israel
  • Taxes are filed in both the US and Israel

*I don't know the first thing about tax law for living abroad and I gather it varies by country.

  • 1
    Half an answer: US citizens must file US tax returns on their worldwide income, irrespective of their place of residence.. – DJohnM Jun 6 '16 at 18:39
  • Welcome to the world of Foreign Tax Credit. – Greg Hewgill Jun 6 '16 at 20:48
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If you're an Israeli resident (i.e.: permanent or temporary resident or an Israeli citizen living in the country) then you're taxed by the Israeli Tax Authority on your worldwide income. Otherwise, you're only taxed by Israel on the income sourced to Israel (earned while in the country or from investments in Israel).

Regardless of that you're taxed on your worldwide income by the IRS.

There's a tax treaty between the US and Israel, which would probably not apply to you for most parts if you're a dual citizen, but some provisions may escape the savings clause.

Both countries have foreign tax credit, the US also has the earned income exclusion that may be useful. Keep in mind that some income that is considered tax-free in Israel, is taxed by the US. Specifically, your employer's retirement/savings contributions are going to be taxed by the US as current income.

There are plenty of US-licensed tax advisers in Israel, the US embassy once had a list, you can try to look on the website if it is still there.

A list of abbreviations to look up and get scared: PFIC, FBAR, FEIE, FTC, FATCA. Forms: 3520, 3520A, 8938, 5471, 114.

  • About the first paragraph: Remember that in Israel there isn't a universal obligation to report your annual income to the tax authority. So under certain circumstances - it's possible your "worldwide income" is unknown to Israeli authorities, I'm not an expert on taxation though. – einpoklum - reinstate Monica Jul 9 '18 at 15:30

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