Key Tax Points for U.S. Citizens and New Olim
- Boruch Levenson
- Jan 5
- 4 min read
In a previous post, "A Doctor’s Guide to Israeli Taxes" , we explored the basic tax structures according to different working arrangements, along with the key Hebrew terminology you need to know.
In today's blog, we highlight specific scenarios that can significantly affect the amount of tax you pay and are important to understand.
Special Considerations for US Citizens
As the US taxes citizens on worldwide income, regardless of residency, doctors in Israel who are also US citizens face dual tax obligations.
Income Tax
If you pay income tax in Israel, the United States usually allows you to credit that tax against your U.S. income tax bill.
This is called a Foreign Tax Credit (FTC).
How it works in practice
You earn income in Israel and pay Israeli income tax on it.
When you file your U.S. tax return, the IRS calculates how much U.S. income tax you would owe on that same income.
The U.S. then lets you subtract (credit) the Israeli income tax you already paid from your U.S. tax bill.
Because Israeli income tax rates are often equal to or higher than U.S. federal income tax rates, the credit you receive usually:
Covers all of your U.S. income tax on that income, or
Reduces it to a very small amount
So in many cases you pay tax to Israel, and little or no additional income tax to the U.S. on the same earnings.
The Foreign Tax Credit generally applies to income tax only.
It usually does not offset:
U.S. Self-Employment tax (Social Security + Medicare)
Certain other U.S. payroll-type taxes
Self-Employment Tax
The United States and Israel do not have a Social Security “totalization” agreement.
That means:
Paying into Bituach Leumi (Israel’s National Insurance/social security)
Does not automatically exempt you from paying U.S. Social Security (Self-Employment tax)
Without careful planning, you may end up paying both Israeli and USA social security taxes on the same earnings.
If you are registered as an Osek Murshe (sole trader) you are considered self-employed by both Israel and America.
To reduce the risk of double Social Security payments, many U.S. citizen doctors in Israel choose to set up an Israeli company (Ltd.) instead of working as a sole trader.
The goal is to change how the U.S. classifies your income
How this works in real life
Step 1: You form an Israeli company
A limited company (חברה בע״מ) is opened in Israel
The company (not you personally) contracts with:
HMOs
hospitals
insurers
private patients
Step 2: The company earns the income
Payments go into the company’s bank account
Invoices and receipts are issued by the company
Step 3: You become an employee of your own company
The company pays you a monthly salary
Payroll includes:
Israeli income tax
Bituach Leumi
Health tax
Pension contributions
You will still pay:
Israeli income tax
Bituach Leumi (through payroll)
Possibly company tax and/or dividend tax
U.S. income tax (often offset by foreign tax credits)
What it aims to reduce is paying two Social Security systems on the same income.
It is strongly recommended to work with an accountant who is experienced in U.S.–Israel cross-border taxation, in order to structure income correctly and avoid unnecessary or unexpected tax liabilities. This is not an area to DIY.
Benefits for New Immigrants
New immigrants to Israel enjoy significant fiscal advantages during their first years.
The primary benefits include:
Foreign Income Tax Exemptions
New immigrants to Israel receive a 10-year tax exemption on foreign income, starting from the date of Aliyah.
What is included in the exemption:
Income from foreign investments
Rental income from property abroad
Interest and dividends
Professional income earned abroad, only if the work is performed while you are physically outside Israel
What is not included:
Income from work performed while you are physically in Israel, even if:
The client is abroad
Payment comes from a foreign country
The work is telemedicine or remote
Practical example for doctors:
Telemedicine or consulting done from Israel → taxable in Israel
Consulting or clinical work done while abroad → may be tax-exempt during the 10-year period
Tax Credits
Extra credit points: For a period of up to 4.5 years from the date of Aliyah, these extra credit points will reduce your tax bill slightly (up to a maximum of approx. ILS 9,000 per year).
The credit points you receive are based on your individual circumstances and change throughout the eligibility period.
Common Deductible Expenses for Doctors
To reduce taxable income, self-employed doctors or incorporated practices can claim legitimate business expenses related to professional activities. Typical deductible expenses include:
Professional insurance: malpractice, liability, or loss-of-income insurance
Clinic or office rent, utilities, and maintenance
Medical and office equipment: diagnostic devices, computers, printers, software
Courses, conferences, and continuing education
Marketing and advertising: website, digital marketing, printed materials
Professional publications and subscriptions
Transportation and vehicle expenses (subject to limits)
Home office expenses (if part of the home is used regularly and exclusively for work)
Maintaining proper invoices and receipts is essential to justify deductions during an audit.
Practical Tips for a Smooth Start
Consult a bilingual accountant experienced with healthcare professionals and international clients.
Separate your bank accounts for business vs. personal expenses.
Keep digital copies of all invoices and receipts for VAT and tax deductions.
Plan reviews to avoid unexpected tax liabilities.
Early planning prevents common pitfalls and positions you take advantage of tax credits, education deductions, and professional reimbursements.
Boruch was born in Manchester and moved to Israel at 17. He is a qualified accountant in both the UK and Israel, with extensive experience in international taxation. Since joining Dray Accountants as a partner in 2020, he has led the firm’s English-speaking client department, providing high-level accounting and tax compliance services for English and French-speaking residents of Israel.
The firm specializes in first-time tax registrations and guiding clients unfamiliar with the Israeli system.
For questions, feel free to contact Boruch via the website or WhatsApp (+972-52-790-3687).