Can U.S. citizens without a social security number be taxed?

Question

I was born in the U.S, where I lived for the first year of my life only. Have never lived there since. I am a citizen of Canada, where I lived for the first half of my life and now of Israel, where I have lived for the last 24 years. I don't have a social security number. Can the U.S. force me to apply for one and pay taxes on my income earned in Israel? if yes, is there a double taxation agreement between the U.S. and Israel?

Answer 1

As a US citizen, you are subject to US federal taxes no matter where you live. If your income for a particular year was above a certain minimum threshold (something like $10K-20K depending on your filing status and other conditions, see the section in the beginning of the relevant tax year's Form 1040 instructions called "Do You Have To File?"), you are required to file a US federal tax return. Whether you have a Social Security number is irrelevant to this requirement. Since you live permanently abroad, you will likely be able to use the Foreign Earned Income Exclusion to exclude the first about $100K of earned income from US taxes, but to use this you must still file and report the income to make use of this (and you can use Foreign Tax Credit on any income you could not use Foreign Earned Income Exclusion on, but again you have to file and report it).

If you are required to file taxes, then you will be required to apply for a Social Security number and use it on your tax return since you are eligible for one. (Only people not eligible for SSNs are eligible to apply for ITINs.)

There is a US-Israel tax treaty but I am not familiar with the details.

Answer 2

I'll try to answer this from the point of view of the US-Israel tax treaty since, when there is a treaty, the answer is usually simpler. The tax treaty with Israel is more-or-less standard and guarantees that you'll be taxed in the US the same way a non-US-citizen Israeli would be.

Article 3, "Fiscal Residence", defines where your tax residence is. The first clause (subtracting the corporate stuff) says:

1. In this Convention: (a) The term "resident of Israel" means: (ii) Any other person resident in Israel for purposes of Israeli tax (b) The, term "resident of the United States" means: (ii) Any other person resident in the United States for purposes of United States tax

In your case you are both of these. You are a tax resident of Israel because you live there, and you are a tax resident of the US since the US tax code declares a US citizen to be "US person". In this case the tie breaker rules apply:

2. Where by reason of the provisions of paragraph (1) an individual is a resident of both Contracting States: (a) He shall he deemed to be a resident of that Contracting State in which he maintains his permanent home. If he has a permanent home in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of that Contracting State with which his personal and economic relations are closest (center of vital interests). In the case of a person who is an "oleh" (as defined in section 9(16) of the Israeli Income Tax Ordinance), his center of vital interests shall be deemed to be in Israel. (b) If the Contracting State in which he has his center of vital interests cannot be determined, he shall be deemed to be a resident of that Contracting State in which he has a habitual abode; (c) If he has a habitual abode in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and (d) If he is a citizen of both Contracting States or of neither Contracting State, the competent authorities of the Contracting States shall settle the question by mutual agreement.

Since you live in Israel and don't live in the US you are deemed to be a tax resident of Israel by this bit the treaty. What this means for the taxes you'll pay in the US is summarized in Article 6, "General Rules of Taxation", as follows:

1. A resident of one of the Contracting States may be taxed by the other Contracting State on any income from sources within that other Contracting State and only on such income, subject to any limitations set forth in this Convention. For this purpose, the rules set forth in Article 4 (Source of Income) shall be applied to determine the source of income.

This says you, like other Israelis and, in fact, all non-US people, will only owe US federal tax on certain US-source income. If you have no such US income you won't owe any US tax. For most US citizens residing in a second country having a tax treaty with the US the result will be the same.

The difficulty with this is that the fact that you won't owe US taxes does not mean you are exempt from filing a US tax return. Since a US citizen is defined to be a "US person" for tax purposes a tax return declaring your worldwide income, along with the associated forms declaring overseas assets and accounts, is still required of you by US law. At some point in there you'll be able to use the tax treaty to zero out your tax owing, but as a US citizen you are still required to file the return to demonstrate you don't owe any tax. I don't know what the penalty is if you fail to file tax returns (the big penalties come from failing to pay taxes you owe but you likely don't owe any) but the law requires you to make the filing.

The SSN is irrelevant. You need a SSN to file tax returns, but you are required to file tax returns and free to apply for a SSN so you can satisfy your obligation.