US-Israel tax treaty: What every American in Israel needs to know (2026)

Written by  Mel Whitney, EA

Last updated Apr 17, 2026

The United States and Israel maintain a bilateral income tax treaty signed in 1975 and updated by protocol on January 26, 1993. The treaty sets maximum withholding rates on cross-border dividends, interest, and royalties, and it contains a savings clause in Article 6, paragraph 3 that significantly limits treaty benefits for US citizens living in Israel.

This guide covers the savings clause, withholding rates by income type, Social Security under Article 21, pensions, capital gains, lottery winnings, estate tax exposure, tie-breaker rules, NCTI, and Form 8833 filing requirements for Americans connected to Israel.

The US–Israel income tax treaty was signed in 1975 and updated by protocol on January 26, 1993 – and it applies differently to US citizens than to non-citizen US residents because of the savings clause.

Key facts: US–Israel tax treaty

• The United States and Israel signed their income tax treaty on November 20, 1975. It was later amended by a first protocol dated May 30, 1980, and a second protocol dated January 26, 1993.
• The savings clause in Article 6, paragraph 3, preserves broad US taxing rights over US citizens, which sharply limits treaty relief for Americans living in Israel.
• Under the current IRS-published treaty text and treaty table, the dividend withholding ceiling is 25% in general and 12.5% for certain qualifying corporate shareholders, while interest is capped at 17.5% in general, 10% for certain financial institutions, and 0% for government-backed debt.
• Article 21 exempts US Social Security from tax in both countries and survives the savings clause.
• The United States and Israel still have no Totalization Agreement, so social tax exposure can overlap.
• Form 8833 penalties remain $1,000 per individual and $10,000 per C corporation under IRC § 6712.
• For Israelis becoming residents from January 1, 2026, legislative materials indicate the long-standing reporting exemption for new residents changed, although older Israeli guidance remained inconsistent as of April 9, 2026.

For a broader filing overview, see the US expat tax guide for Israel.

What is the US–Israel tax treaty?

The US–Israel income tax treaty is a bilateral agreement between the United States and the State of Israel that allocates taxing rights over specific income categories and sets treaty ceilings on cross-border withholding tax. The treaty was signed on November 20, 1975, and the second protocol, dated January 26, 1993, updated withholding rules, covered taxes, and several technical provisions.

The IRS publishes the full treaty text and the line-by-line technical explanation on its treaty documents pages. The current IRS treaty text shows dividends in Article 12, interest in Article 13, royalties in Article 14, capital gains in Article 15, private pensions in Article 20, and Social Security in Article 21.

The treaty helps most when the taxpayer is a resident of one country but not a citizen of the other. A US citizen in Israel generally receives only limited treaty benefits because Article 6, paragraph 3, allows the United States to tax its citizens as if most of the treaty did not exist.

The US–Israel tax treaty primarily benefits non-US-citizen Israeli residents and noncitizen US residents – most US citizens remain fully taxable by the United States because of the savings clause.

The savings clause: Why the treaty has limits for US citizens

The savings clause in Article 6, paragraph 3 states that each country may generally tax its citizens and residents as if the treaty had not entered into force. For US citizens living in Israel, that rule overrides most treaty reductions and exemptions that would otherwise help a non-US-citizen Israeli resident.

The following categories of treaty benefits explicitly survive the savings clause and remain relevant to US citizens:

1. Social Security payments under Article 21.
2. Relief from double taxation under Article 26.
3. Non-discrimination protections under Article 27.
4. Certain charitable contribution rules under Article 15-A

NOTE! The other exceptions include Article 10 (grants), Article 28 (mutual agreement procedure), and the Article 20(2)–(3) rules for annuities, alimony, and child support.

Based on a common TFX client scenario, a US citizen living in Tel Aviv receives dividends from an Israeli company. The savings clause prevents the US citizen from using the treaty to eliminate US tax on that income, and Israeli domestic withholding still has to be analyzed under Israeli law. In practice, the double-taxation solution is usually the Foreign Tax Credit (Form 1116), not a treaty exemption.

The savings clause in Article 6, paragraph 3 means most US citizens in Israel cannot use the US–Israel treaty to cut US tax – the Foreign Tax Credit is usually the main double-taxation relief tool.

Withholding tax rates under the US–Israel tax treaty

The US–Israel tax treaty sets maximum withholding tax rates on dividends, interest, and royalties flowing between the two countries. Under the current IRS-published treaty text and treaty table, these rates are most useful for Israeli residents who are not US citizens and for noncitizen US residents receiving Israeli-source income.

For most US-source income paid to a qualifying Israeli resident, the current IRS treaty materials reduce the standard 30% US withholding rate to 25% for most dividends, 12.5% for certain qualifying corporate direct dividends, and 17.5% for most interest.

Source: IRS treaty text, IRS Technical Explanation, and IRS Tax Treaty Table 1.

Domestic withholding procedures, beneficial-owner documentation, and residency certification still matter in practice. US citizens are also subject to the savings clause, so treaty-rate relief often matters more on source-country withholding than on final US tax liability.

Dividend withholding rate: Key scenarios

The following 3 scenarios show how the current treaty dividend ceilings work in practice under Article 12:

1. Based on a common TFX client scenario, an Israeli resident individual who is not a US citizen receives $10,000 of dividends from a US corporation. The current treaty ceiling is 25%, so the maximum US withholding is $2,500 instead of the default 30% domestic withholding of $3,000.
2. An Israeli resident individual who is not a US citizen and who holds US-listed ETFs such as JEPQ or JEPI through an Israeli broker may receive the 25% treaty rate instead of the 30% default rate if the broker has valid treaty-residency documentation.
3. An Israeli resident corporation may qualify for the 12.5% direct-dividend rate only if the corporation meets the ownership and technical conditions in Article 12. The reduced direct-dividend rate is not a general rate for individual investors.

Interest and royalty withholding rates

The US–Israel treaty keeps a relatively high 17.5% general interest ceiling compared with many other US treaties. Article 13 reduces that rate to 10% for certain banks, savings institutions, and insurance companies lending, and Article 13 also provides a 0% exemption for government or government-backed debt.

Article 14 caps copyright and film royalties at 10% and industrial royalties at 15%. For US citizens, the savings clause can still override the treaty on the US side, so the withholding benefit is most useful when the recipient is not a US citizen.

Capital gains under the US–Israel tax treaty

Article 15 generally exempts a resident of one country from tax by the other country on capital gains, but that rule has important exceptions and does not override the savings clause for US citizens. For Americans living in Israel, the practical result is that the treaty rarely creates a full capital-gains exemption.

Based on a common TFX client scenario, a US citizen living in Israel sells US equities at a long-term gain. The United States still taxes the gain under domestic law, generally at 0%, 15%, or 20%, depending on taxable income, because the savings clause preserves full US taxing rights over US citizens. Israel may also tax the same gain because the taxpayer is an Israeli tax resident, so the Foreign Tax Credit (Form 1116) usually does the heavy lifting.

Israeli real estate gains are also important. The treaty specifically recognizes Israel’s land appreciation tax as a covered Israeli tax, which means a US citizen who pays Israeli land appreciation tax on an Israeli property sale may usually analyze that payment for US foreign tax credit purposes.

For US citizens in Israel, the US–Israel treaty rarely eliminates capital-gains tax – relief usually comes through the Foreign Tax Credit rather than a treaty exemption.

For US expats selling their property in Israel, find out the capital gains tax you owe the IRS.

Learn more

Pension and retirement income (Article 20)

Article 20 says private pensions and annuities are generally taxable only in the country of residence. For a US citizen who lives in Israel, however, the savings clause usually allows the United States to keep taxing US pension income even though the treaty would otherwise assign taxing rights to Israel as the country of residence.

Based on a common TFX client scenario, a US citizen retired in Israel receives $48,000 per year from a US IRA. Israel may tax the pension as residence-state income, and the United States may also tax the same distribution because citizenship-based taxation survives the treaty. In practice, the US return often relies on Form 1116 rather than Article 20 to prevent double taxation.

US citizens making Aliyah in 2026 or later should assume that Israeli reporting obligations need close review from year 1 of residency. US tax obligations do not change: US citizens still owe US tax reporting on worldwide income regardless of Israeli resident status.

Article 20 helps residents in theory, but US citizens in Israel usually resolve pension double taxation through Form 1116 because the savings clause preserves US tax on pension income.

Social Security: Article 21

Article 21 is one of the most important treaty provisions for Americans in Israel because it exempts Social Security payments and other covered public pensions paid by one country to a resident of the other country from tax in both countries. The IRS technical explanation also confirms that Article 21 survives the savings clause, so the exemption can apply to US citizens.

A US citizen living in Israel who receives US Social Security should review how the exemption is reflected on the US return. Current Form 8833 instructions generally waive separate Form 8833 reporting for an individual treaty position involving Social Security, pensions, annuities, or other public pensions, so a standalone Form 8833 is not usually required for Article 21 alone.

Article 21 is reciprocal. A resident of the United States who receives Israeli public social-insurance-type payments covered by Article 21 can analyze the same bilateral exemption structure.

Article 21 is the clearest treaty win for US citizens in Israel because the Social Security exemption survives the savings clause and can remove US tax on covered benefits.

For related background, see Social Security benefits taxation for non-US persons.

Lottery winnings and the US–Israel tax treaty

The US–Israel tax treaty does not contain a treaty article that reduces withholding on lottery or gambling winnings. Under Israeli domestic law, lottery and gambling income is generally taxed at 35% (but not every win is fully taxable), and US-source gambling winnings paid to a foreign person are generally subject to 30% withholding under US withholding rules unless a specific exception applies.

Based on a common TFX client scenario, a US citizen living in Israel wins ₪500,000 in an Israeli lottery. Israeli tax is generally withheld at source, and the same winnings are also reportable on the US return because a US citizen is taxed on worldwide income. The treaty does not provide a special reduction, so the main relief tool is the Foreign Tax Credit on Form 1116.

An Israeli resident who is not a US citizen and who wins a US-based lottery also faces the treaty gap. Because the US–Israel treaty does not provide a reduced gambling winnings rate, the default US withholding framework usually applies.

The US–Israel tax treaty does not create a special low rate for lottery winnings – the practical answer is usually domestic withholding plus Foreign Tax Credit analysis.

Estate tax provisions

The current IRS treaty materials for Israel do not list a separate US–Israel estate tax treaty. The IRS technical explanation for the income treaty also states that estate, gift, and generation-skipping transfer taxes are not generally covered by the US–Israel income tax convention.

That matters because estate exposure is determined mainly under domestic law. US citizens and US domiciliaries remain subject to US federal estate tax on worldwide assets, while noncitizens can still face US estate tax on US-situs assets under domestic rules.

For decedents dying in 2025, the IRS federal estate tax basic exclusion amount for the 2025 tax year to be filed in 2026 is $13,990,000 per person. The amount rises to $15,000,000 for the 2026 tax year, to be filed in 2027. Americans in Israel with US real estate, US marketable securities, or a closely held business should review both US estate exposure and Israeli succession procedures.

The current IRS record does not show a separate US–Israel estate tax treaty, so estate planning for Americans in Israel is driven mainly by domestic US rules rather than a bilateral estate treaty.

Tie-breaker rules for US–Israel dual residents

A dual resident is a person who is treated as a tax resident of both countries under domestic law at the same time. Article 3 of the US–Israel treaty contains a 5-step tie-breaker test for individuals to assign a single treaty residence when both countries claim residence.

The following 5 criteria are applied in sequence under the tie-breaker rules:

1. Permanent home.
2. Center of vital interests.
3. Habitual abode.
4. Citizenship.
5. Mutual agreement by the competent authorities.

The tie-breaker matters most for noncitizens and green card holders who are dual residents under domestic law. A US citizen can still analyze treaty residence for limited purposes, but the savings clause continues to preserve US tax on worldwide income.

The US–Israel tie-breaker uses 5 sequential tests – permanent home, center of vital interests, habitual abode, citizenship, and mutual agreement – to assign a single treaty residence.

To better understand the broader citizenship-related context, see dual citizenship tax obligations for US–Israeli citizens.

No US–Israel Totalization Agreement: Self-employment tax trap

The United States and Israel do not have a Social Security Totalization Agreement. That means the income tax treaty does not prevent overlapping US Social Security and Medicare taxes and Israeli Bituach Leumi contributions when the same work is covered under both countries’ domestic systems.

The following 3 work patterns show why the gap matters:

1. A US citizen employed abroad by a US employer can remain inside the US Social Security and Medicare system under US domestic rules, while Israeli social-insurance exposure may also need to be analyzed under Israeli law.
2. For the 2025 tax year, a self-employed US citizen in Israel generally remains subject to the US self-employment tax of 15.3% on 92.35% of net earnings, with the 12.4% Social Security portion applying only up to $176,100 of 2025 earnings ($184,500 of 2026 earnings), and separate Israeli Bituach Leumi contributions may also apply.
   The 2.9% Medicare portion continues above that amount.
3. A US citizen employed only by an Israeli company may avoid US self-employment tax on wage income, but Israeli payroll social charges still remain part of the compliance picture.

Countries such as the United Kingdom, Germany, and France have US Totalization Agreements that can eliminate dual coverage. Israel is not on the Social Security Administration’s agreement-country list, so Americans in Israel do not get that relief.

Without a US–Israel Totalization Agreement, self-employed US citizens in Israel can face both US self-employment tax and Israeli Bituach Leumi on the same underlying work income.

For a clearer view of the earned-income planning context, see our guide on Foreign Earned Income Exclusion (FEIE).

Foreign Tax Credit vs. treaty position: Which to use

Most US citizens in Israel rely on the Foreign Tax Credit on Form 1116, not treaty positions, because the savings clause removes most treaty benefits for US citizens. The Foreign Tax Credit gives dollar-for-dollar relief for qualifying foreign income taxes paid on the same income that the United States taxes.

For US citizens in Israel, Form 1116 is usually the primary double-taxation tool, while treaty positions matter mainly in narrow exceptions such as Article 21 or special residency questions.

A US citizen in Israel with Israeli salary income usually starts with Form 1116. A taxpayer with foreign earned income but low foreign tax may prefer Form 2555, while a taxpayer with covered US Social Security should analyze Article 21 instead. TFX readers comparing methods should review the foreign tax credit guide for expats and foreign tax credit carryover.

NCTI (formerly GILTI): 2026 rule change for US citizens with Israeli companies

The IRS’s 2026 form instructions now refer to GILTI as NCTI, short for Net CFC Tested Income, on certain post-2025 corporate forms and instructions. The name change matters for Americans in Israel who own Israeli corporations that are treated as controlled foreign corporations under US tax law.

The rate change also matters. For tax years beginning before January 1, 2026, section 250 generally allowed a 50% deduction against GILTI for eligible corporate taxpayers. After 2025, the section 250 deduction drops to 40%, which raises the theoretical 21% corporate tax burden on the included income from 10.5% to 12.6%. For individual US shareholders in Israel, the practical impact depends on structure, elections, and whether section 962 is used.

US shareholders with Israeli companies should revisit 2026 CFC modeling because the IRS now uses the NCTI label on some forms, and the post-2025 section 250 deduction is smaller than it was under the pre-2026 GILTI framework.

Form 8833: When to disclose a treaty-based position

Form 8833 is used to disclose treaty-based return positions under section 6114 or dual-resident positions under section 7701(b). The penalty for failing to disclose a required treaty-based return position is $1,000 per individual and $10,000 per C corporation under IRC § 6712.

The following 4 situations are the most important Form 8833 review points for taxpayers connected to Israel:

1. A dual-resident taxpayer claims treaty residence in the foreign country under the treaty tie-breaker.
2. A taxpayer takes a non-waived treaty position that changes the source, character, or amount of income compared with the Internal Revenue Code.
3. A taxpayer claims a treaty business-profits or permanent-establishment position that overrides normal US taxation.
4. A taxpayer takes any other non-waived treaty position that reduces or eliminates US tax and is specifically reportable under the Form 8833 instructions.

Current Form 8833 instructions also matter because not every treaty position is reportable. The instructions state that certain individual treaty positions involving dependent personal services, pensions, annuities, Social Security, and other public pensions are generally waived from Form 8833 reporting.

Form 8833 is critical for non-waived treaty positions such as dual-resident claims, but current IRS instructions generally waive separate Form 8833 reporting for an individual Social Security treaty position.

Read our Form 8833 guide for a deeper filing mechanics.

Conclusion

Navigating the US–Israel tax treaty starts with one core rule: most Americans in Israel do not get broad treaty relief because the savings clause preserves US tax on worldwide income. In practice, the most important treaty exception is Article 21 for Social Security, while the most important everyday relief mechanism is usually Form 1116.

For Americans making Aliyah in 2026, the changing Israeli reporting rules for new residents add another compliance issue that should be reviewed early. Taxes for Expats helps Americans in Israel with Form 1116 calculations, treaty-position analysis, and CFC reporting.

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Mel Whitney

EA

Mel Whitney, an EA with TFX, has 15 years of tax experience and a BS in Accounting from the University of Georgia. He excels in expatriate services, providing client-focused solutions.

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