IRS / Israel Tax Authority — US-Israel Income Tax Treaty Overview and Savings Clause

Source: https://www.taxesforexpats.com/country-guides/israel/us-israel-tax-treaty.html · 2026

Key Facts

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 IRS publishes the full treaty text and technical explanation at: https://www.irs.gov/pub/irs-trty/israel.pdf
• The treaty covers: dividends (Article 12), interest (Article 13), royalties (Article 14), capital gains (Article 15), private pensions (Article 20), and Social Security (Article 21).
• The US and Israel have NO Totalization Agreement, so social tax exposure can overlap for Americans working in Israel.
• Form 8833 penalties: $1,000 per individual and $10,000 per C corporation under IRC § 6712.

Who Benefits Most from the Treaty?

The US–Israel tax treaty primarily benefits:

• Non-US-citizen Israeli residents receiving US-source income
• Noncitizen US residents receiving Israeli-source income

Most US citizens living in Israel receive only limited treaty benefits because of the savings clause.

The Savings Clause (Article 6, Paragraph 3)

The savings clause 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, this overrides most treaty reductions and exemptions.

Treaty Benefits That DO Survive the Savings Clause (relevant to US citizens):

1. Social Security payments under Article 21 — US Social Security is exempt from tax in both countries
2. Relief from double taxation under Article 26
3. Non-discrimination protections under Article 27
4. Certain charitable contribution rules under Article 15-A
5. Article 10 (grants)
6. Article 28 (mutual agreement procedure)
7. Article 20(2)–(3) rules for annuities, alimony, and child support

Practical Impact for US Citizens in Israel

A US citizen living in Israel who receives dividends from an Israeli company cannot use the treaty to eliminate US tax on that income because of the savings clause. The main double-taxation relief tool for most Americans in Israel is the Foreign Tax Credit (Form 1116), not a treaty exemption.

Important: Most US citizens in Israel do not file Form 8833 just to claim the Foreign Tax Credit on Form 1116. Form 8833 is for non-waived treaty-based return positions, while Form 1116 is a domestic-law credit mechanism.

2026 Update for New Israeli Residents

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.