Do you have a Tax return filing obligation as an American citizen living in ISRAEL?

The American tax system

Unlike the tax system in Israel, American citizens have to report their Worldwide income even if they are not U.S residents for tax purposes. In other words, American citizens residing in Israel are obligated to report their income from ISRAEL and file U.S tax returns.

What are the criteria for filling as an Employee/Self employed?

Employees:

According to U.S law there are 3 main criteria’s that will help you understand if you are required to file A U.S tax:

1. Your Gross income.
2. Your filing status.
3. Your age.

Please click here to view the specific criteria’s in order to understand if you are required to file.

For example: if you were single at the end of 2016, under the age of 65 and your total income was higher than 10,350$ you are required to file a 2016 tax return.

Self employed individuals

According to U.S law an American citizen with a net profit  higher than $400 a year, must file a U.S tax return.This also applies to self employed individuals living in ISRAEL

Other Important aspects regarding tax filing:

1. Late filing – if you do not have a tax liability you are not susceptible to fines and penalties for filing late.
2. The tax treaty between Israel and the U.S prevents double taxation – any tax payments made in Israel will be deducted from your tax liabilities on your U.S tax return.  This means that only if the tax percentage is higher in the U.S in comparison to the tax percentage in Israel, for a certain type of income there is a possibility you will be required to pay the differences.
3. Taking advantage of your earned income exclusion – under certain conditions up to 101,300$ of your yearly income can be excluded for tax purposes.
4. Filing your tax return – the fact that you have to file tax returns does not necessarily mean you have a tax liability, you may also be eligible for refundable credits.
5. Paying into your social security account via tax return filing – In order to be eligible for social security benefits you must pay at least 40 quarters during your lifetime. The payment is made by calculating your self employment tax and submission of your return.

Please note that in most cases American citizens living outside the U.S have no tax liability. Therefore, filing tax returns according to the law is highly recommended.

For any further questions please contact us between 9 AM and 6 PM and we will be happy to assist you.