Philip Stein & Associates — U.S.-Israel Tax Treaty: Social Security and Bituach Leumi
Source: https://www.pstein.com/our-firm/us-israel-tax-treaty · 2026
No Totalization Agreement Between the U.S. and Israel
The U.S.-Israel Tax Treaty is specifically an income tax treaty. Most countries also have a separate totalization agreement with the United States — but Israel does not, which is highly unusual.
A totalization agreement exempts self-employed individuals in a foreign country from paying U.S. Social Security tax. For example, self-employed workers in the UK, Germany, or Switzerland do not pay U.S. Social Security tax because they pay their own country’s equivalent.
In Israel, there is no such exemption. If you are self-employed in Israel, you must pay:
- Bituach Leumi (Israeli National Insurance), AND
- U.S. self-employment tax of 15.3% on net income up to approximately $132,900
This double burden is significant and can be very costly for olim who are self-employed.
Silver Lining: Social Security Benefits May Be Tax-Exempt
Article 21 of the U.S.-Israel Tax Treaty provides an important benefit for those who receive U.S. Social Security:
“Social security payments and other public pensions paid by one of the Contracting States to an individual who is a resident of the other Contracting State shall be exempt from tax in both Contracting States…”
This means:
- U.S. Social Security benefits received by a resident of Israel are exempt from tax in both the U.S. and Israel.
- This is a significant advantage for those making Aliyah later in life who are already receiving or will receive Social Security.
- It is also a partial offset for those paying U.S. self-employment tax while working in Israel.
Recommendation: Both Social Security payments (contributions) and benefits should be discussed with a qualified accountant to fully understand the tax implications.