Relocation from Israel to the USA

In recent years, the United States has become one of the most sought-after destinations for Israelis looking to relocate – whether for employment, investments, studies, or improving their quality of life. The enormous American market, career opportunities, high standard of living, and well-established Jewish communities attract many Israelis.

However, moving to the USA is not a simple matter – it requires thorough preparation and familiarity with the legal, financial, and tax aspects involved. In this article, we will review the key points to consider before making the move.

What Does the Relocation Process to the USA Involve?

The relocation process to the USA includes several essential steps.

First, you should conduct a thorough examination of employment opportunities in the USA, the cost of living (which varies significantly between large cities like New York and San Francisco and smaller cities), the tax system, education options for children, available healthcare services, and other important factors.

Second, you need to consider whether you want to terminate your Israeli residency and the many implications that follow. Simultaneously, you must arrange your legal status in the USA – obtaining an appropriate visa, green card, or citizenship/residency options. Additionally, it’s important to plan how you will manage your finances and assets, and arrange private health insurance, as the healthcare system in the USA is primarily based on private insurance, and medical treatment costs are very high.

Furthermore, one of the central challenges in relocating to the USA is obtaining an appropriate residence visa. The USA offers a wide range of visas, each with different requirements and limitations. Each visa type has different requirements – education, employment contract, studies, etc. It’s important to choose the visa that best suits your personal circumstances.

Tax Aspects of Relocation to the USA

When moving to a foreign country, the question always arises whether there is tax liability in Israel after the move, and the answer typically depends on whether you have terminated your Israeli tax residency or not.

Termination of Residency

One of the central issues in the relocation process is determining residency for tax purposes. In Israel, an Israeli resident is taxed on worldwide income, while a foreign resident is taxed only on income derived in Israel. Residency status is determined based on the “center of life,” which is examined through qualitative and quantitative tests.

If you intend to settle in the USA for the long term, it may be preferable to terminate your residency in Israel (both for income tax and National Insurance purposes). Note that Israeli residents who terminate their residency are subject to an “exit tax” on certain assets.

According to Section 1 of the Israeli Income Tax Ordinance, residency is determined based on the center of life test, and a rebuttable presumption based on the number of days you stayed in Israel, as follows:

• The days test – An individual is considered an Israeli resident if they spent 183 days or more in Israel in a single tax year, or if they spent 30 days or more in the current tax year and a total of 425 days or more in Israel during the current tax year and the two preceding years. This presumption can be rebutted if the individual proves that, despite their stay in Israel, their center of life is not in Israel.
• The “Center of Life” test – The substantive test, which examines all personal, family, economic, and social ties of the individual. These include a permanent place of residence, a place of economic activity, a location of economic interests, and more.

An individual who meets the day’s presumption test, meaning they are considered an Israeli resident according to this test, must submit Form 1348 – “Declaration of Residency” to the tax authorities to declare the termination of residency and detail the circumstances supporting that their center of life is not in Israel.

It’s important to note that terminating residency is not a one-time event but an ongoing process, and the tax authority may examine the individual’s residency status even years after departure. Therefore, it is recommended to keep detailed documentation of all actions indicating the transfer of the center of life to the USA and to avoid creating new ties to Israel.

Currently, a dramatic bill has been introduced to the Knesset regarding amendments to the Income Tax Ordinance concerning the determination of who is an Israeli resident for tax purposes.

According to the proposal, conclusive presumptions (which cannot be rebutted) will be defined, establishing the number of days according to which an individual will be considered an Israeli resident, and the “center of life” test will serve as an aid only in cases that do not fall within the clear cases established in the presumptions.

Considering this, there may be situations where an individual who has terminated their residency in Israel will be considered an Israeli resident for tax purposes in future years, as counting the days of stay will be sufficient in many cases.

A link to the draft bill can be found here – click here.

Tax Treaty Between Israel and the USA

Israel and the USA have signed a treaty to prevent double taxation. This treaty is designed, among other things, to prevent a situation where a person pays double tax on the same income. The treaty regulates issues such as determining residency in cases of dual residency, tax rates on passive income (dividends, interest, and royalties), and taxation of employment income.

It’s important to note that according to the treaty, income from work performed by an Israeli resident in the USA will generally be taxed in the USA, but there may be situations where you will be required to pay tax in Israel as well (with credit for tax paid in the USA) if you have not terminated your residency.

According to the treaty, in cases where an individual is considered a resident for tax purposes in both countries (Israel and the USA), their residency will be determined according to the treaty, as follows:

1. The individual shall be deemed a resident of the country in which they have a permanent home available to them; if they have a permanent home in both countries, they shall be deemed a resident of the country with which their personal and economic relations are closer (“center of vital interests”);
2. If the country in which the center of vital interests is located cannot be determined, or if they do not have a permanent home in either country, they shall be deemed a resident of the country in which they have a habitual abode;
3. If they have a habitual abode in both countries or in neither of them, they shall be deemed a resident of the country of which they are a citizen;
4. If the individual is a citizen of both countries, or of neither of them, the competent authorities of the countries shall reach a mutual agreement.

Additionally, the treaty between Israel and the USA establishes relatively high withholding tax rates compared to other treaties:

• Dividends – 25% or 12.5%
• Interest – 17.5%
• Royalties – 15% or 10%

To read the Double Taxation Convention between Israel and USA in English – click here.

It’s important to remember that the USA is one of the few countries in the world that taxes based on citizenship, not just residency. This means that an American citizen living in Israel is still required to report and, in certain cases, pay tax in the USA.

Exit Tax

Israelis leaving Israel may be required to pay an “exit tax” on certain assets. This tax is intended to capture the latent gain in assets held by the Israeli resident.

According to Section 100A of the Income Tax Ordinance, an individual who ceases to be an Israeli resident is deemed to have sold their assets on the day before terminating residency (“Exit Day”). The tax is calculated on the notional gain – the difference between the original purchase price of the asset and its value on the exit day.

Exit tax applies to certain assets when an individual ceases to be an Israeli tax resident. This tax is levied on unrealized capital gains of various qualifying assets at the time of departure, though some assets, like Israeli real estate, may be exempt as they remain taxable in Israel regardless of residency status.

There are various methods for calculating and paying exit tax liability, each with different implications for the taxpayer. The timing and structure of these payments can significantly impact the overall tax burden. It is highly recommended to consult with an international tax expert before departing Israel to develop a tax strategy that best aligns with your specific circumstances and financial goals.

How Will Terminating Tax Residency Affect the Taxation of Income?

If the move to the USA is temporary, the individual remains an Israeli resident for tax purposes and cannot terminate residency. This means that the individual is liable for tax in Israel on their worldwide income and must report to the Israeli tax authority on all income, including income from the USA.

If residency is not terminated, it is likely that a tax credit can be claimed for taxes paid in the USA in accordance with the tax treaty between Israel and the USA.

If the move to the USA is permanent and you have terminated your Israeli residency, tax liability in Israel will apply only to income derived in Israel, while other income will be subject to tax in the USA.

For more information on terminating residency, click here.

The Tax System in the USA

The US tax system is complex and based on several layers: federal tax, state tax, and sometimes local tax (city or county). As mentioned above, unlike most countries in the world, the USA taxes its citizens and residents on their worldwide income, regardless of where they live.

US tax residents include:

• US citizens
• Green card holders

People who meet the Substantial Presence Test – To meet this test, you need a physical presence in the United States of at least 31 days during the current year, and a stay of 183 days during a 3-year period that includes the current tax year and the two preceding years. The calculation will include the days of stay in the current tax year and 1/3 of the days of stay in the first preceding year, and 1/6 of the days of stay in the second tax year preceding the current year.

Federal income tax brackets in the USA range from 10% to 37%, depending on the amount of taxable income and filing status (single, married filing jointly, head of household, etc.). See the tax brackets for 2025:

Head of Household	Married couple	Individual (single)	Tax rates
$0 – $17,000	$0-$23,850	$0 – $11,925	10%
$17,001 – $64,850	$23,851-$96,950	$11,926 –  $48,475	12%
$64,851 – $103,350	$96,951-$206,700	$48,476 – $103,350	22%
$103,351 – $197,300	$206,701-$394,600	$103,351 – $197,300	24%
$197,301 – $250,500	$394,601-$501,050	$197,301 – $250,525	32%
$250,501 – $626,350	$501,051-$751,600	$250,526 – $626,350	35%
Over 626,350$	Over 751,600$	Over 626,350$	37%

In addition, many states impose a state income tax. For example, California imposes a state income tax of up to 13.3%. States such as Florida, Texas, Nevada, and several others do not impose additional tax.

In the USA, capital gains from the sale of assets held for less than a year are subject to tax at regular income tax rates (i.e., at a rate of 10% to 37%), and capital gains from the sale of assets held for more than a year are subject to tax at reduced rates of 0%, 15%, or 20%, depending on the taxpayer’s overall income level. Additionally, high-income taxpayers may be subject to an additional 3.8% tax on investment income (Net Investment Income Tax). Additional taxation may apply at the state level. Non-resident aliens will generally be taxed only on income effectively connected with a US trade or business (Effectively connected income) or on capital gains from the sale of US real property interests.

Additionally, the USA imposes an estate tax. The amount of estate tax varies between American citizens and foreign citizens. Estates of American citizens are exempt from tax up to approximately $14.99 million as of 2025. In contrast, estates of foreign citizens are exempt up to only $60,000, and the tax rate is up to 40% on the value of the asset (not on the profit generated but on the entire value of the asset).

In addition to the federal estate tax, there are states that impose additional estate taxes and states that also collect inheritance taxes.

For more information on this topic, read the article “Estate Tax and Inheritance Tax in the USA – What You Need to Know?”

National Insurance

An Israeli resident staying abroad is required to pay National Insurance contributions, but if they have terminated their residency, they are not required to pay National Insurance, but also are not entitled to health services and social rights in Israel.

Israel and the USA have not signed a social security agreement, and therefore, there is no coordination of social rights between the countries. This means you need to arrange private health insurance in the USA. In the USA, the healthcare system is primarily based on private insurance, and medical treatment costs are very high. Therefore, it is essential to arrange comprehensive health insurance in the USA, whether through an employer, government programs (Medicare, Medicaid) for those eligible, or purchasing private insurance.

Transferring Funds from Israel to the USA

You should examine the various options for transferring money abroad – bank transfers, international credit cards, etc. Each option has advantages and disadvantages in terms of fees, transfer times, exchange rates, amount limitations, and regulations. Pay attention to reporting requirements to authorities and banks, in accordance with anti-money laundering laws and international regulations (FATCA, CRS). It is also advisable to open a bank account in the USA in advance.

According to Section 170(a) of the Ordinance, when making a payment from Israel to a foreign resident that constitutes taxable income, withholding tax applies. There are several exceptions to this obligation for which there is no need to apply to the tax authority for an exemption from withholding tax.

In addition, there are other requirements regarding the transfer of money abroad, such as an accountant’s approval regarding tax payments or the source of funds, and more.

For more information, see the article “Transferring Funds from Israel Abroad“

Opening a Bank Account in the USA

Opening a bank account in the USA is possible for foreigners, but the process may be more complex than in Israel, especially due to stringent regulatory requirements. Generally, the requirements for opening a bank account in the USA typically include: a valid passport, a valid visa, a US tax identification number (SSN or ITIN), proof of US address, and sometimes a letter of recommendation from a bank in Israel.

It’s important to note that there are American banks that offer special services for new residents or foreigners, as well as online banks that may offer more convenient conditions for opening an account.

Returning to Israel

When returning to Israel, you should consider the various implications. If you terminated your residency, you may be eligible for benefits as a regular or veteran returning resident (depending on the length of your stay abroad), including tax exemptions on income and capital accumulated abroad.

You should also consider the waiting period for health services (up to 6 months), renewal of National Insurance rights, and possible benefits from the Ministry of Aliyah and Integration.

In short, relocation to the USA offers many opportunities – diverse employment options, an advanced education system, established Jewish communities, and a high quality of life. However, it is a complex process that requires professional planning, personal guidance, and a deep understanding of all legal and tax aspects.

It is recommended to consult with international tax experts to conduct early and comprehensive planning that will ensure a smooth and successful transition to your new life in the USA.

Nimrod Yaron & Co. specializes in terminating residency and providing comprehensive advice for relocation to foreign countries, including the USA. Our team of experts will assist you with optimal tax planning and terminating residency. For an initial consultation –click here.

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