Israel recently passed several tax changes that could be very helpful for Americans making aliyah in 2026.
Before getting into the details, a quick disclaimer: Cole & Waxman is a U.S. accounting firm. We are not Israeli accountants, and this article is not Israeli tax advice. Anyone making aliyah, changing residency, or restructuring income should speak with qualified Israeli tax and legal professionals. That said, many of our clients are U.S. citizens living in Israel or planning aliyah, and these new rules are important enough that we wanted to share our understanding of the key points.
The short version: for some U.S. olim, 2026 may be a very favorable year to make aliyah from a tax perspective. The new rules may reduce Israeli income tax, reduce double social security-type taxes, and make remote work for a U.S. employer somewhat easier to discuss.
1. The 10-Year Israeli Exemption Still Exists
Historically, one of the major Israeli tax benefits for new olim has been the 10-year exemption from Israeli tax on foreign-source income.
That basic benefit still exists.
For example, a new oleh may still be exempt from Israeli tax on many types of foreign-source income during the 10-year period, such as U.S. investment income, foreign rental income, foreign pension income, or foreign capital gains, depending on the facts.
However, there is an important change starting in 2026: olim who become Israeli tax residents from January 1, 2026 may still receive the 10-year Israeli tax exemption, but they may now have Israeli reporting obligations on worldwide income and assets.
In other words, the income may still be exempt from Israeli tax, but it may no longer be invisible to the Israeli reporting system.
That is a big practical change. Americans are already used to worldwide reporting because the U.S. taxes citizens on worldwide income. Now, new olim should expect more coordination between their U.S. and Israeli tax filings.
2. New Israeli Exemption for Active Income
This is the headline change.
Olim who become Israeli tax residents during the window from November 5, 2025 through December 31, 2026 may be eligible for a new Israeli tax exemption on active income[RS1] through 2030.
The annual caps are expected to be:
| Year | Maximum Exempt Active Income |
| 2026 | ₪600,000 |
| 2027 | ₪1,000,000 |
| 2028 | ₪1,000,000 |
| 2029 | ₪350,000 |
| 2030 | ₪150,000 |
This can apply to qualifying active income, such as salary, business income, or professional income. It is not meant to cover passive income like dividends, interest, rent, or capital gains.
A few important cautions:
First, this is not automatic. The person needs to qualify, the aliyah/residency timing needs to fit, and the income needs to be the right type of income.
Second, work performed physically in Israel may be treated as Israeli-source income even if paid by a U.S. employer. That can actually be helpful under this new rule, but it also means the sourcing analysis matters.
Third, related-party situations need special review. For example, if the oleh is being paid by a family company or related business, the regular caps may not apply in the same way.
Still, for the right person, this could be a very meaningful benefit. A U.S. citizen making aliyah in 2026 who continues earning active income may be able to reduce Israeli income tax dramatically during the first few years.
3. U.S. Social Security and Bituach Leumi
This is another major development for Americans.
Because the U.S. and Israel do not have a totalization[RS2] agreement, Americans in Israel have often faced an ugly result: U.S. Social Security/self-employment tax on one side, and Israeli Bituach Leumi on the other.
The new rule appears to help certain U.S. olim who are paying U.S. Social Security tax on active income.
Beginning in 2026, qualifying U.S. olim may be exempt from Israeli Bituach Leumi on that same income for the first five years after aliyah.
But there are two critical points:
First, this does not eliminate mas briut.
The exemption is for Bituach Leumi/National Insurance, not Israeli health tax.
Second, it only helps where U.S. Social Security tax is actually being paid.
For example, if a new oleh continues working for a U.S. employer and remains subject to U.S. FICA, or is self-employed and paying U.S. self-employment tax, this rule may be very helpful. But each case needs to be checked carefully.
This change could save real money, especially for self-employed Americans who otherwise may have faced social security-type taxes in both countries.
4. Remote Work for a U.S. Employer
Many Americans making aliyah want to continue working for a U.S. employer. One of the big concerns has always been whether that creates Israeli tax exposure for the U.S. company.
In tax language, this is often discussed as a “permanent establishment” issue. The fear is that the employee’s work from Israel could create a taxable presence for the foreign employer in Israel.
The new rules appear to provide some relief for foreign employers connected to the work of a qualifying oleh in Israel.
That is good news, but it should not be overstated. This does not mean a U.S. company can ignore Israeli payroll, withholding, employment law, benefits, VAT, or corporate tax questions. It also does not mean every remote-work setup is automatically safe.
What it does mean is that the conversation with a U.S. employer may become easier. Instead of a flat “you cannot work from Israel,” there may now be a better basis to explore a compliant structure.
5. The U.S. Tax Side Still Matters
None of these Israeli benefits eliminate U.S. tax filing obligations.
A U.S. citizen who makes aliyah still needs to file U.S. tax returns and may still need to deal with FBAR, Form 8938, foreign tax credits, foreign earned income exclusion, self-employment tax, PFIC issues, Israeli pensions, and other cross-border reporting.
The most important point is this:
Tax-free in Israel does not mean tax-free in the United States.
In fact, if Israeli income tax is reduced because of the new Israeli exemption, the U.S. foreign tax credit may also be reduced. That can increase the importance of careful U.S. planning.
For example, a new oleh may have Israeli salary exempt from Israeli income tax under the new rule. But that salary may still be taxable on the U.S. return. If there is little or no Israeli tax paid, there may be less foreign tax credit available to offset U.S. tax.
This is exactly where U.S.-Israel coordination becomes important.
Practical Takeaways
For Americans considering aliyah in 2026, these changes are worth reviewing before the move, not after.
The key questions are:
- When will you become an Israeli tax resident?
- Is your income active income or passive income?
- Is the income earned from work physically performed in Israel?
- Are you being paid by a related party?
- Are you paying U.S. Social Security or self-employment tax?
- Will your U.S. employer allow remote work from Israel, and under what structure?
- How will the Israeli exemption affect your U.S. tax return?
Bottom Line
The new 2026 Israeli tax rules may create a significant opportunity for U.S. citizens making aliyah, especially those who continue earning active income after moving to Israel.
The combination of the 10-year foreign-income exemption, the new active-income exemption, possible Bituach Leumi relief for those paying U.S. Social Security tax, and some permanent-establishment relief for foreign employers could make aliyah financially easier for certain Americans.
But the details matter. These benefits are not automatic, and they do not replace U.S. tax planning. Anyone considering aliyah should review the facts with both Israeli and U.S. tax professionals before making decisions.
Acknowledgment
Special thanks to Rachayl Simon, CPA (Israel) for her review, comments, and valuable input regarding the Israeli tax aspects discussed in this article. Any errors, omissions, or misunderstandings remain solely the responsibility of the author.
Israeli Tax Consultation
Readers seeking advice regarding Israeli tax residency, aliyah planning, Israeli reporting obligations, or the application of the new Israeli tax rules to their specific circumstances may contact:
Rachayl Simon, CPA (Israel)
📞 +972 2-632-0773
✉️ office@simonrcpa.com
Professional advice should always be obtained before making tax, legal, or financial decisions.
Disclaimer: Educational use only. This article is not tax advice, legal advice, or professional advice of any kind. The content may contain errors or omissions and may not reflect current law. Consult qualified tax and legal professionals before taking any action based on this information.