How moving to Israel at the right time may significantly reduce the overall tax burden in Israel and the United States
U.S. citizens considering immigration to Israel often face a complex question: how can they make the move without ending up with double taxation, uncertainty, or an inefficient payment structure. In recent years, against the backdrop of regulatory and legislative changes, a particularly meaningful tax opportunity has emerged for some new immigrants. When the timing of the move, the employment structure, and the reporting approach in both countries are properly examined, it is sometimes possible to achieve a far more efficient result than many assume at the outset.
One of the key developments in this context is the temporary order approved in Israel in March 2026, which created a new benefit track for new immigrants and senior returning residents with respect to income from personal labor earned in Israel. For U.S. citizens considering Aliyah, this is a development of major practical importance, because it adds a new layer to tax planning when moving to Israel, beyond the reliefs previously known in relation to income generated outside Israel alone.
The focus is on three main mechanisms:
- An exemption from Israeli tax on income from personal labor for new immigrants and senior returning residents.
- An exemption from Israeli National Insurance contributions for those who continue paying U.S. social security contributions, subject to the applicable conditions.
- The ability to use relevant exclusion mechanisms under U.S. law for earned income from outside the United States.
When all of these elements apply at the same time, the result may be particularly efficient and may even lead to a dramatic reduction in the overall tax liability.
The purpose of this article is to help U.S. citizens considering immigration to Israel understand, in simple language, which tax benefits may be relevant to them and what should be reviewed in advance in order to plan the move properly
Why is this important now?
In general, moving from the United States to Israel does not eliminate tax liability in either country. U.S. citizens generally remain subject to U.S. taxation on a personal basis even after the move, while those who become Israeli residents are also subject to tax in Israel, at least with respect to income earned in Israel. The tax treaty between the two countries helps reduce double taxation, but in most cases it does not eliminate tax entirely. Rather, it sets out priority rules, credit mechanisms, and adjustments.
Against this background, the recent Israeli legislation allowing broad exemptions for new immigrants, together with an exemption from Israeli National Insurance contributions for those who pay U.S. social security contributions, is especially significant. For American families considering Aliyah, this is not only a tax reporting issue. It is a decision that can directly affect disposable income, the timing of the move, and the way the relocation should be structured from the outset.
What is the new exemption in Israel for income from personal labor?
The first and central component is the temporary order approved in Israel in March 2026. This measure grants new immigrants and senior returning residents an exemption from tax on income earned in Israel, mainly income from personal labor, subject to the relevant caps and eligibility conditions. This is a significant change from the previous situation, in which new immigrants mainly benefited from relief in relation to income generated outside Israel, but not from a similar exemption on salary or employment income generated in Israel itself.
Under the framework that was adopted, individuals who became Israeli residents during the period from November 5, 2025, through the end of 2026 may fall within the scope of the benefit.
- The cap for 2026 is ₪600,000.
- In 2027 and 2028, the cap increases to ₪1,000,000 per year.
- After that, it gradually decreases (₪350,000 in 2029 and ₪150,000 in 2030).
For employees, professionals, and individuals with significant earned income, this is an especially generous mechanism, because in the appropriate circumstances it may result in a full exemption from Israeli income tax on income from personal labor.
The practical meaning is that an individual or family who moves to Israel at the right time and continues to earn income from personal labor at a level that does not exceed the relevant cap, may completely avoid paying Israeli income tax on that income. For that reason, planning the timing of aliyah is not only a family or logistical decision, but a material tax decision.
Is there also an exemption from National Insurance in Israel?
Alongside the income tax exemption available to new immigrants, an additional important mechanism has been introduced: an exemption from paying Israeli National Insurance contributions for new immigrants who continue paying U.S. social security contributions. Those who, as a result of their employment model, continue paying U.S. social security contributions even after moving to Israel, may benefit from an exemption from Israeli National Insurance contributions for a period of five years.
This aspect is especially important because in the past, even when income tax was reduced through proper tax planning, a substantial burden of Israeli National Insurance payments often remained alongside payments in the United States. The new exemption significantly reduces that overlap. It is important to emphasize, however, that the exemption does not apply to Israeli health insurance contributions. In other words, even where there is eligibility for an exemption from National Insurance contributions, Israeli health insurance contributions will still have to be paid, alongside the continued payment of U.S. social security contributions.
How does U.S. law fit into the picture?
The third component is U.S. law, in particular the ability to use the Foreign Earned Income Exclusion (FEIE) and the Foreign Housing Exclusion under Form 2555. These mechanisms are not new, but in the context of a move to Israel they become especially powerful, because they may work together with the new exemptions in Israel.
The FEIE allows part of earned income generated outside the United States to be excluded from U.S. federal tax, subject to relatively strict conditions involving a substantial number of days spent in the foreign country, namely Israel. In appropriate circumstances, this may be combined with the housing exclusion for housing costs, and also with the standard deduction in the United States. Where spouses file jointly, and particularly where a family meets all of the eligibility conditions, the combination of these elements may reduce taxable income for U.S. federal tax purposes to zero or close to zero.
Accordingly, although moving to Israel does not sever the connection to the U.S. tax system, with proper planning it may lead to a result in which no U.S. federal income tax is paid on earned income, and the main payments that remain are U.S. social security contributions alongside Israeli health insurance contributions.
Summary Table: The Main Benefits Worth Knowing
Component | What is the benefit | Who might this be suitable for | What is important to check |
Exemption from Israeli tax on income from personal labor | Significant relief, and in some cases a full exemption up to the relevant cap | New immigrants and senior returning residents during the qualifying period | Timing of Aliyah, level of income, and compliance with the legal conditions |
Exemption from Israeli National Insurance contributions | An exemption for a period of up to five years for those who continue paying U.S. social security contributions | Employees in certain employment structures | Whether payments are in fact being made in the United States and what the employment model is |
Form 2555 in the United States | Ability to exclude part of earned income from outside the United States, and in some cases housing expenses as well | U.S. citizens who meet the residency and reporting requirements | Eligibility for the FEIE, the housing exclusion, and the related reporting implications |
Coordination between Israel and the United States | A significant reduction in the overall tax burden | Families and workers who plan properly before making Aliyah | Full coordination between the Israeli and U.S. aspects |
What does the result look like in practice?
When all of the mechanisms work together, an unusual situation may arise in which the tax liability in both countries becomes minimal. Assume, for illustration only, a married couple moves to Israel during the qualifying period, meets the eligibility conditions under Form 2555 in the United States, and earns approximately $178,000 per year together as earned income. At that income level, and subject to the exchange rate and the specific circumstances, it may be possible to remain below the Israeli exemption cap in the year of arrival, while also staying within the range in which the exclusions and deductions in the United States may be sufficient to reduce U.S. federal income tax to zero.
In such a scenario, no income tax would be paid in Israel because of the exemption for new immigrants, and no U.S. federal income tax would be paid, subject of course to specific compliance with the conditions of U.S. law. In practice, the payments that would remain are U.S. social security contributions and Israeli health insurance contributions. This means that the overall tax burden may be reduced to approximately 9% to 10% of income, rather than the much higher overall tax rate that might otherwise have applied without this combination.
How should this be done properly?
The right approach begins before the move, not after it. It is advisable to examine in advance the timing of the relocation, the planned employment structure, the level of income, and whether the income is expected to fall within the relevant caps. At the same time, it is important to consider how U.S. reporting will align with the new status in Israel, so that a good solution is not created in one country only to create a problem in the other.
From our professional experience, many families initially focus only on whether there is a tax exemption in Israel, or only on whether Form 2555 can be used in the United States. But the real value is created when all the layers are considered together: income tax, National Insurance, health insurance, employment structure, documentation, and coordinated reporting. Sometimes an early change in the employment agreement, the payment method, or the timing of the move prevents costly mistakes later on. In some cases, it also becomes clear that broader family and financial planning is needed, not just the filing of tax returns.
The combination of the new Israeli tax exemption for new immigrants, the exemption from Israeli National Insurance contributions in appropriate cases, and the ability to rely on exclusion and deduction mechanisms under U.S. law may create a particularly significant tax opportunity for U.S. citizens moving to Israel during the relevant period. At the same time, this is a complex area that requires an individual review of each case based on its specific circumstances, including the timing of the move, the level of income, compliance with the eligibility conditions in both the United States and Israel, and the nature of the employment arrangement. Therefore, anyone considering aliyah to Israel should review the full picture in advance and not rely only on a general understanding of the headlines.
Would you like to check how to plan your Aliyah properly?
Nimrod Yaron & Co. specializes in Israeli and international taxation. Our team is made up of professionals with many years of experience at the Israel Tax Authority, as well as experience at leading firms and law offices, and brings together legal and economic perspective. We advise private and public companies, Israeli and foreign businesses, global venture capital funds, and also clients seeking focused advice in clear, practical language. We also work with a professional network of accounting and law firms around the world in order to provide a full-service solution in cross-border matters.
If you are a U.S. citizen considering Aliyah to Israel, this is the time to conduct a strategic review before making decisions. An early review of eligibility, employment structure, National Insurance implications, benefit caps, and the reporting approach in both countries may prevent costly mistakes and significantly improve the overall result.
We invite you to contact us for a focused consultation meeting to review eligibility, map exposure, and plan the tax aspects properly before Aliyah, during the move, or immediately afterward, so that you can receive a clear, practical, and well-founded picture that will allow you to move forward with confidence.
FAQ
Is every U.S. citizen who immigrates to Israel automatically eligible for the benefits?
No. Eligibility depends on the timing of aliyah, the issue of residency, the type of income, the employment structure, and whether the relevant conditions in Israel and the United States are met.
Does moving to Israel eliminate the U.S. reporting obligation?
No. U.S. citizens generally remain subject to U.S. reporting obligations even after aliyah, and it is therefore important to plan the reporting in parallel with reviewing the available benefits in Israel.
Does the exemption from Israeli National Insurance contributions also include health insurance?
No. Even where there is eligibility for an exemption from National Insurance contributions, the exemption does not apply to Israeli health insurance contributions, which may still have to be paid.
Can an employee of a U.S. company benefit from these advantages?
Sometimes yes, but the employment model, payment structure, U.S. social security position, and the reporting implications in both countries must all be carefully reviewed.
When should the tax implications of aliyah begin to be reviewed?
It is advisable to start before the actual move, because in some cases the timing of aliyah, the employment structure, and early documentation planning directly affect the scope of the available benefits.
