If you live in Israel, most US federal tax deadlines that fell on or after October 7, 2023 are now postponed to September 30, 2027. On September 30, 2026 the IRS issued Notice 2026-63, the fourth notice in a row granting this relief. Here is what the relief does, who qualifies, what it leaves out, and where the rules are still unclear.

Background

The relief rests on Internal Revenue Code §7508A, which lets Treasury postpone tax deadlines by up to one year for taxpayers affected by a federally declared disaster or by a "terroristic or military action" under §692(c)(2). Before issuing relief for an event abroad, Treasury confirms with the State and Justice Departments that the activity was directed against the United States or an ally (Rev. Proc. 2004-26).

Because each grant is capped at one year, the IRS cannot simply extend the original notice. Instead, every September it makes a new terroristic-action determination for the prior two years and issues a fresh notice. Each new notice starts its window on the day the previous one ends, so postponed deadlines roll forward without a gap for anyone who stays eligible.

Summary of the notices

Taken together, the four notices postpone deadlines falling between October 7, 2023 and September 30, 2027.

Each later notice also carries forward anything still postponed under the earlier ones, but only for taxpayers who are eligible under both. For example, Notice 2026-63 states that a taxpayer eligible under 2025-53 but not under 2026-63 had until September 30, 2026.

Who is covered

You qualify if you fall into any of these groups listed in Notice 2026-63 (the earlier notices use the same list). The "covered area" is Israel, the West Bank and Gaza.

• Residents and local businesses. Any individual whose principal residence, or any business or sole proprietor whose principal place of business, is in the covered area.
• Taxpayers whose preparer or records are in Israel. Any individual, business, estate or trust whose tax return preparer, or whose records needed to meet the deadline, are in the covered area. This can include a US resident who uses an Israeli tax firm.
• Relief workers affiliated with a recognized government or philanthropic organization and assisting in the covered area.
• Spouses of an affected taxpayer, for purposes of a joint return only.
• Visitors to the covered area who were killed, injured or taken hostage.

If the IRS already has an Israeli address on file for you, relief is applied automatically. Everyone else, including US residents relying on an Israeli preparer, should call the IRS disaster hotline at (866) 562-5227, or (267) 941-1000 from outside the US, to request relief.

What is covered

The relief postpones three things: filing, paying, and the penalties and interest that would normally follow a late filing or payment.

• Filing. Income, estate, gift, employment and most excise tax returns due in the window. Under Notice 2026-63 that includes 2025 individual returns on extension (normally October 15, 2026) and 2026 returns (normally April 15, 2027).
• Payments. Balances due with those returns and estimated tax installments, including the January 15, April 15, June 15 and September 15, 2027 estimates.
• Penalties and interest. Under §7508A(a), the postponement period is disregarded when calculating interest, penalties and additions to tax. If you receive a late-filing or late-payment penalty notice for this period, call the number on the notice to have it abated.
• Other time-sensitive acts. Filing a Tax Court petition, filing a claim for refund, bringing a refund suit, and making qualified retirement plan contributions (see Treas. Reg. §301.7508A-1(c)(1) and Rev. Proc. 2018-58).

The IRS gets the same extra time on its side. Deadlines for assessing tax, issuing notices and demands, and collecting are also postponed for affected taxpayers.

A postponement is not the same as an extension. Notice 2026-63 says that if you need more time beyond September 30, 2027, you should check the extension rules for your specific return.

What is not covered

Anything due before October 7, 2023. The relief only reaches deadlines that fell on or after October 7, 2023. The IRS made this explicit in 2023: a 2022 return on extension (due October 16, 2023) could be filed late under the relief, but the 2022 tax itself was due April 18, 2023, so late payment of that tax was not covered. Interest and penalties on older balances continue to run as usual.

State taxes. The notices are federal only. Each state decides for itself whether to follow IRS disaster relief, so former US residents who still have a state filing obligation should check that state's rules separately.

FBARs, unless FinCEN says so. The FBAR is a Treasury (FinCEN) filing, not an IRS tax return, so §7508A does not cover it. FinCEN has issued parallel relief in the past, for example FIN-2024-NTC5 gave until September 30, 2025 for 2023 FBARs, but each year's FBAR relief should be confirmed directly with FinCEN.

Grey areas

Two questions come up often in our practice where the notices do not give a clear answer. Treat what follows as open issues, not settled law.

Statute of limitations on refunds

Filing a refund claim is a listed postponed act, and §7508A(a)(3) lets the postponement period be disregarded in determining the amount of a credit or refund. So a refund claim whose three-year deadline under §6511 fell in the window should still be timely if filed by September 30, 2027.

The harder question is the amount. Section 6511(b) limits a refund to tax paid within a "lookback" period before the claim, and withholding and estimated payments are treated as paid on the original due date. It is not settled how far four stacked notices, each a separate one-year grant, stretch that lookback. Taxpayers with old unfiled refund years should not wait until the last day, and should file as early as possible to reduce the risk.

Issuance dates of SSNs

Several credits require a Social Security number issued by the due date of the return. For example, §24(h)(7) requires this for a child to qualify for the child tax credit. Many families in Israel obtain SSNs for their children late, and file returns during the postponement period.

The open question is whether "due date" means the original statutory date or the postponed date. Notice 2026-63 itself says a postponement is not an extension of time to file, which cuts against reading the postponed date as the due date. We are not aware of published IRS guidance resolving this.

A case from our practice. One of our clients lives in Israel and had a child born in 2022. The child's SSN was issued in November 2023, after the extended due date for 2022 returns (October 16, 2023). She claimed the child and the child tax credit on an amended 2022 return. The IRS rejected the claim, citing the SSN timing rule. We appealed, arguing that the disaster-relief postponement moved the 2022 due date, so the SSN was issued in time. Appeals agreed and allowed the credit.

The outcome was favorable, but it took years. The amended return was filed in April 2024, rejected in March 2025, and resolved only after a reconsideration request and a formal Appeals protest. One Appeals result is also not precedent, and another taxpayer could get a different answer. Families should still apply for SSNs as early as possible rather than rely on the postponement.

What this means for you

Unless the IRS issues a fifth notice, everything postponed since October 7, 2023 must be filed and paid by September 30, 2027. That includes 2023, 2024, 2025 and 2026 returns that have not yet been filed.

• Don't let three years of returns pile up into one deadline. Filing early costs nothing and avoids a crunch.
• If you moved out of Israel, check whether you are still eligible under the latest notice. Relief only carries forward for taxpayers eligible under each notice in the chain.
• If you live in the US (or anywhere outside of Israel) but your preparer or records are in Israel, call the IRS hotline to have relief applied to your account. IRS disaster hotline is (866) 562-5227, open 8AM central time.
• If you are owed a refund for an older year, or need an SSN for a child, act now rather than rely on the postponement.

Cole & Waxman Tax Services works with US taxpayers in Israel on returns, FBARs and IRS correspondence. If you are unsure how the relief applies to you, contact us.

Sources

• IRS Notice 2026-63 and IR-2026-116
• IRS Notice 2025-53
• IRS Notice 2024-72 and IR-2024-252
• Notice 2023-71, summarized by KPMG and The Tax Adviser
• FinCEN FIN-2024-NTC5

Disclaimer

This article is provided for general educational and informational purposes only and does not constitute tax, legal, investment, or financial advice. Reading this article or communicating with Cole & Waxman Tax Services does not create a client relationship.

The investment platforms, financial institutions, and products referenced in this article are mentioned for illustrative purposes only and do not constitute endorsements or recommendations. Availability, eligibility, and suitability vary by individual circumstances and jurisdiction.

Before making any investment or financial decisions, you should consult with your own qualified tax advisor, financial planner, or other professional who is familiar with your specific situation.

The post Israel Disaster Relief: IRS Postponements for Taxpayers Affected by the October 7 Attacks appeared first on Cole & Waxman Tax Services.

Background

The relief rests on Internal Revenue Code §7508A, which lets Treasury postpone tax deadlines by up to one year for taxpayers affected by a federally declared disaster or by a "terroristic or military action" under §692(c)(2). Before issuing relief for an event abroad, Treasury confirms with the State and Justice Departments that the activity was directed against the United States or an ally (Rev. Proc. 2004-26).

Because each grant is capped at one year, the IRS cannot simply extend the original notice. Instead, every September it makes a new terroristic-action determination for the prior two years and issues a fresh notice. Each new notice starts its window on the day the previous one ends, so postponed deadlines roll forward without a gap for anyone who stays eligible.

Summary of the notices

Taken together, the four notices postpone deadlines falling between October 7, 2023 and September 30, 2027.

Each later notice also carries forward anything still postponed under the earlier ones, but only for taxpayers who are eligible under both. For example, Notice 2026-63 states that a taxpayer eligible under 2025-53 but not under 2026-63 had until September 30, 2026.

Who is covered

You qualify if you fall into any of these groups listed in Notice 2026-63 (the earlier notices use the same list). The "covered area" is Israel, the West Bank and Gaza.

• Residents and local businesses. Any individual whose principal residence, or any business or sole proprietor whose principal place of business, is in the covered area.
• Taxpayers whose preparer or records are in Israel. Any individual, business, estate or trust whose tax return preparer, or whose records needed to meet the deadline, are in the covered area. This can include a US resident who uses an Israeli tax firm.
• Relief workers affiliated with a recognized government or philanthropic organization and assisting in the covered area.
• Spouses of an affected taxpayer, for purposes of a joint return only.
• Visitors to the covered area who were killed, injured or taken hostage.

If the IRS already has an Israeli address on file for you, relief is applied automatically. Everyone else, including US residents relying on an Israeli preparer, should call the IRS disaster hotline at (866) 562-5227, or (267) 941-1000 from outside the US, to request relief.

What is covered

The relief postpones three things: filing, paying, and the penalties and interest that would normally follow a late filing or payment.

• Filing. Income, estate, gift, employment and most excise tax returns due in the window. Under Notice 2026-63 that includes 2025 individual returns on extension (normally October 15, 2026) and 2026 returns (normally April 15, 2027).
• Payments. Balances due with those returns and estimated tax installments, including the January 15, April 15, June 15 and September 15, 2027 estimates.
• Penalties and interest. Under §7508A(a), the postponement period is disregarded when calculating interest, penalties and additions to tax. If you receive a late-filing or late-payment penalty notice for this period, call the number on the notice to have it abated.
• Other time-sensitive acts. Filing a Tax Court petition, filing a claim for refund, bringing a refund suit, and making qualified retirement plan contributions (see Treas. Reg. §301.7508A-1(c)(1) and Rev. Proc. 2018-58).

The IRS gets the same extra time on its side. Deadlines for assessing tax, issuing notices and demands, and collecting are also postponed for affected taxpayers.

A postponement is not the same as an extension. Notice 2026-63 says that if you need more time beyond September 30, 2027, you should check the extension rules for your specific return.

What is not covered

Anything due before October 7, 2023. The relief only reaches deadlines that fell on or after October 7, 2023. The IRS made this explicit in 2023: a 2022 return on extension (due October 16, 2023) could be filed late under the relief, but the 2022 tax itself was due April 18, 2023, so late payment of that tax was not covered. Interest and penalties on older balances continue to run as usual.

State taxes. The notices are federal only. Each state decides for itself whether to follow IRS disaster relief, so former US residents who still have a state filing obligation should check that state's rules separately.

FBARs, unless FinCEN says so. The FBAR is a Treasury (FinCEN) filing, not an IRS tax return, so §7508A does not cover it. FinCEN has issued parallel relief in the past, for example FIN-2024-NTC5 gave until September 30, 2025 for 2023 FBARs, but each year's FBAR relief should be confirmed directly with FinCEN.

Grey areas

Two questions come up often in our practice where the notices do not give a clear answer. Treat what follows as open issues, not settled law.

Statute of limitations on refunds

Filing a refund claim is a listed postponed act, and §7508A(a)(3) lets the postponement period be disregarded in determining the amount of a credit or refund. So a refund claim whose three-year deadline under §6511 fell in the window should still be timely if filed by September 30, 2027.

The harder question is the amount. Section 6511(b) limits a refund to tax paid within a "lookback" period before the claim, and withholding and estimated payments are treated as paid on the original due date. It is not settled how far four stacked notices, each a separate one-year grant, stretch that lookback. Taxpayers with old unfiled refund years should not wait until the last day, and should file as early as possible to reduce the risk.

Issuance dates of SSNs

Several credits require a Social Security number issued by the due date of the return. For example, §24(h)(7) requires this for a child to qualify for the child tax credit. Many families in Israel obtain SSNs for their children late, and file returns during the postponement period.

The open question is whether "due date" means the original statutory date or the postponed date. Notice 2026-63 itself says a postponement is not an extension of time to file, which cuts against reading the postponed date as the due date. We are not aware of published IRS guidance resolving this.

A case from our practice. One of our clients lives in Israel and had a child born in 2022. The child's SSN was issued in November 2023, after the extended due date for 2022 returns (October 16, 2023). She claimed the child and the child tax credit on an amended 2022 return. The IRS rejected the claim, citing the SSN timing rule. We appealed, arguing that the disaster-relief postponement moved the 2022 due date, so the SSN was issued in time. Appeals agreed and allowed the credit.

The outcome was favorable, but it took years. The amended return was filed in April 2024, rejected in March 2025, and resolved only after a reconsideration request and a formal Appeals protest. One Appeals result is also not precedent, and another taxpayer could get a different answer. Families should still apply for SSNs as early as possible rather than rely on the postponement.

What this means for you

Unless the IRS issues a fifth notice, everything postponed since October 7, 2023 must be filed and paid by September 30, 2027. That includes 2023, 2024, 2025 and 2026 returns that have not yet been filed.

• Don't let three years of returns pile up into one deadline. Filing early costs nothing and avoids a crunch.
• If you moved out of Israel, check whether you are still eligible under the latest notice. Relief only carries forward for taxpayers eligible under each notice in the chain.
• If you live in the US (or anywhere outside of Israel) but your preparer or records are in Israel, call the IRS hotline to have relief applied to your account.  IRS disaster hotline is (866) 562-5227, open 8AM central time.  
• If you are owed a refund for an older year, or need an SSN for a child, act now rather than rely on the postponement.

Cole & Waxman Tax Services works with US taxpayers in Israel on returns, FBARs and IRS correspondence. If you are unsure how the relief applies to you, contact us.

Sources

• IRS Notice 2026-63 and IR-2026-116
• IRS Notice 2025-53
• IRS Notice 2024-72 and IR-2024-252
• Notice 2023-71, summarized by KPMG and The Tax Adviser
• FinCEN FIN-2024-NTC5

Disclaimer

This article is provided for general educational and informational purposes only and does not constitute tax, legal, investment, or financial advice. Reading this article or communicating with Cole & Waxman Tax Services does not create a client relationship.

The post Israel Disaster Relief: IRS Postponements for Taxpayers Affected by the October 7 Attacks appeared first on Cole & Waxman Tax Services.

Families coping with the trauma of a terror attack or a war injury have already endured more than enough loss and stress. They should not face the burden of unnecessary tax complications on top of their recovery.

A U.S.-Israeli dual citizen who receives disability compensation from Israel after a terror attack or a combat injury may be able to exclude some or all of that payment from U.S. taxable income, depending on the nature of the injury, the underlying incident, and the type of compensation received.

That surprises many people because U.S. citizens are taxed on worldwide income. If you are a U.S. citizen living in Israel, the default rule is that income from Israel still belongs on your U.S. tax return.

But U.S. tax law contains specific exclusions for certain injury-related disability payments, including some payments tied to terrorism and some tied to injuries from military service. These exclusions can apply even when the payment comes from a foreign government agency, such as Misrad HaBitachon or Bituach Leumi, provided the U.S. requirements are met.

The key is not whether you received a Form W-2, Form 1099, or any U.S. tax document. The key is why the payment was made, and whether it fits one of the specific exclusions in U.S. law.

It is equally important to be clear about what this does not mean. Not every Israeli war- or terror-related payment automatically qualifies, and some situations involve genuine gray areas. This article explains where the exclusion may apply and what needs to be reviewed; it is not a blanket rule.

1. The Wrong Assumption: “No U.S. Form Means No U.S. Issue”

Many U.S. citizens in Israel assume that if an Israeli agency does not issue a U.S. tax form, the payment is invisible or irrelevant for U.S. tax purposes. That assumption is incomplete.

U.S. citizens generally file U.S. tax returns reporting worldwide income, even when the income comes from Israel. Israeli agencies usually will not issue Form W-2, Form 1099-R, or Form 1099-MISC, so the taxpayer and preparer must classify the payment based on the law and the supporting documents.

The absence of a U.S. tax form does not decide whether the payment is taxable; the legal character of the payment decides.

Example (fictional): A U.S.-Israeli dual citizen receives a monthly disability award from Bituach Leumi after being injured in a terror attack. No U.S. tax form arrives in January. That does not end the U.S. analysis; the return preparer still must decide whether the payment is taxable income, excluded disability income, qualified disaster relief, or another type of payment.

IRS Publication 3920 explains that disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States or its allies are excluded from income. It also instructs taxpayers to attach supporting documents when they cannot obtain a corrected U.S. tax form, which is exactly the practical issue many Israeli recipients face. (irs.gov)

2. The Core Rule for Terror Victims: Section 104(a)(5)

Internal Revenue Code section 104 excludes several categories of injury-related payments from gross income. Section 104(a)(5) covers “disability income” attributable to injuries incurred as a direct result of a terroristic or military action, as defined in section 692(c)(2). (law.cornell.edu)

Section 692(c)(2) defines that term in two parts, and the difference between them matters for Israelis. The first part covers terroristic activity that a preponderance of the evidence indicates was directed against the United States or any of its allies. The second part covers military action involving the U.S. Armed Forces and resulting from violence or aggression against the United States or any of its allies. (law.cornell.edu)

The terrorism prong expressly reaches activity directed against U.S. allies, wherever it occurs. The military-action prong is narrower: it generally requires involvement of the U.S. Armed Forces.

Example (fictional): A dual citizen injured in a terrorist attack in Israel receives Israeli government disability compensation because of the injury. The U.S. tax question is not “Was this paid by the United States?” The better question is: “Is this disability income attributable to injuries incurred as a direct result of terroristic activity directed against the United States or one of its allies?” If the answer is yes, the payment may qualify for exclusion.

IRS Publication 525 describes the exclusion in similar terms, noting that it can apply to qualifying attacks whether they occur within or outside the United States. (irs.gov)

Why war injuries are different. Because the military-action prong generally requires U.S. Armed Forces involvement, most war-related injuries in Israel will not fit that part of the definition. An injury from a rocket attack, an infiltration, or an attack by a terrorist organization during wartime may still be analyzed under the terrorism prong, but whether a particular incident qualifies depends on the facts. Injuries suffered by IDF soldiers in combat are often better analyzed under a different provision, discussed in Section 4.

3. Israel and the “Ally” Language: Strong Support, Not an Automatic Answer

For U.S.-Israeli dual citizens, the words “or its allies” are what connect the terrorism exclusion to Israel-related payments. The Code does not define “ally,” but Israel is designated a major non-NATO ally of the United States, and there is a strong argument that terrorism directed against Israel falls within the statute.

The IRS explains that a terrorist action is one directed against the United States or any of its allies, including a multinational force in which the United States participates. It also explains that military action involves the U.S. Armed Forces and actual or threatened violence or aggression against the United States or its allies, excluding training exercises. (irs.gov)

Israel’s status as a U.S. ally provides a strong basis for applying the terrorism exclusion to qualifying Israeli disability compensation, but each payment still has to satisfy the U.S. requirements.

Example (fictional): A U.S. citizen living in Jerusalem receives Bituach Leumi payments after being injured in a terror attack recognized as a hostile action. The payment is not from the VA, and it is not reported on Form 1099-R. But if the payment is disability income directly attributable to injuries from terroristic activity directed against a U.S. ally, the taxpayer may have a strong basis to treat the payment as excluded under section 104(a)(5).

Israeli recognition helps, but it is not the test. A determination by Bituach Leumi or Misrad HaBitachon that someone is a victim of hostile action (peulot eivah) is important supporting documentation. However, Israeli eligibility rules and U.S. tax rules are not the same. Israeli law may recognize incidents, injuries, or payment types that do not fit the U.S. definitions, so the U.S. requirements must be analyzed on their own.

4. IDF Soldiers: A Separate Exclusion May Apply Under Section 104(a)(4)

Disability payments to IDF soldiers and veterans, including reservists, are often better analyzed under section 104(a)(4) than under the terrorism rule. Section 104(a)(4) excludes amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country. The words “of any country” mean the provision is not limited to the U.S. military. (law.cornell.edu)

There is an important limitation. Under section 104(b), for most people who were not already receiving these payments or serving in the armed forces as of September 24, 1975, the exclusion generally applies only to amounts received by reason of a combat-related injury. A combat-related injury is a personal injury or sickness incurred as a direct result of armed conflict, while engaged in extrahazardous service, or under conditions simulating war, or one caused by an instrumentality of war.

For IDF veterans, the key questions are whether the payment is a disability pension or similar allowance, and whether the underlying injury was combat-related.

Example (fictional): A U.S.-Israeli dual citizen was wounded in combat during reserve duty and receives a monthly disability allowance from Misrad HaBitachon’s Rehabilitation Department. That payment may qualify for exclusion under section 104(a)(4) as a combat-related disability allowance. By contrast, a soldier injured in an ordinary non-combat accident during routine service may receive a similar Israeli payment, but the U.S. exclusion may not apply, depending on the circumstances.

This mirrors the treatment of U.S. military benefits. MyArmyBenefits explains that military retirement pay based on age or length of service is generally taxable, while military disability retirement pay and veterans’ benefits, including service-connected disability pension payments, may be partially or fully excluded. (MyArmyBenefits)

5. Separate the Payment Types: Disability, Disaster Relief, Pension, and Income Replacement

The most common mistake is grouping every payment under one label. U.S. tax law uses different rules for different payment types.

Even when the underlying incident qualifies, the type of payment still matters. The exclusions discussed above apply to disability compensation, meaning payments for the injury itself. They do not automatically extend to every payment that follows an attack or a war injury.

Disability payments that meet the requirements of section 104(a)(4) or 104(a)(5) may be excluded. Qualified disaster relief payments may also be excluded when they cover reasonable and necessary personal, family, living, funeral, home repair, or similar expenses caused by a terrorist attack. Publication 3920 states that qualified disaster relief payments are not subject to income tax, self-employment tax, or employment taxes, and that no withholding applies. (irs.gov)

Other payments require separate analysis. Lost-wage or income replacement benefits, unemployment-type benefits, survivor and dependent benefits, regular pensions based on age or length of service, and general welfare or assistance payments may not qualify for exclusion, even when they arise from the same event.

The stronger your documentation of the payment’s purpose, the stronger your U.S. tax position.

Example (fictional): A family receives three different Israeli payments after a terror attack: a disability allowance for bodily injury, reimbursement for home damage, and a temporary lost-income benefit. These should not be treated the same way. The disability allowance may fit section 104(a)(5), the home damage reimbursement may fit the qualified disaster relief rules, and the lost-income benefit requires closer review because Publication 3920 says income replacement payments, such as lost wages or unemployment compensation, are not qualified disaster relief payments. (irs.gov)

6. How to Report It When There Is No W-2 or 1099

Israeli agencies usually do not prepare U.S. tax reporting forms. That means the taxpayer should keep a clear file and be ready to explain any exclusion claimed.

The file should include the Israeli agency approval letter, the legal basis for the award, medical or disability determination documents, documentation of the incident that caused the injury (for example, a terror attack versus a combat injury during military service), and a translation if the documents are in Hebrew. The taxpayer should also keep a yearly payment summary showing the shekel amount, dates received, and exchange rate method used.

For a U.S. return, the safest practical approach is to document the exclusion even when the amount is not included in taxable income.

Example (fictional): A taxpayer receives ₪120,000 during the year from Bituach Leumi as disability compensation for injuries from a terror attack recognized as a hostile action. If the facts support the exclusion, the preparer may treat the amount as excluded but should retain a workpaper citing section 104(a)(5), section 692(c)(2), and the Israeli documents showing the reason for the award. For an IDF combat injury, the workpaper would instead rely on section 104(a)(4) and section 104(b). Where the position is less certain, a tax professional may also consider whether disclosure on the return is appropriate.

If an amount was previously reported as taxable and later determined to qualify for exclusion, Publication 3920 describes using Form 1040-X to amend the return and attaching supporting documents. It specifically addresses situations where the taxpayer cannot obtain corrected U.S. tax forms and says to explain that fact and attach documents supporting the claim. (irs.gov)

Three Practical Takeaways

1. Do not assume Israeli war or terror disability payments are taxable just because you are a U.S. citizen. Section 104(a)(5) may exclude disability income tied directly to terrorism directed against the United States or its allies, and section 104(a)(4) may exclude combat-related disability payments from service in the armed forces of any country, including the IDF.
2. Do not assume every payment is excluded. Whether a payment qualifies depends on the nature of the injury, the underlying incident, and the type of compensation received. Israeli recognition is helpful evidence but does not by itself decide the U.S. question.
3. Build the file before the IRS asks. Keep Israeli approval letters, medical determinations, hostile-action or combat-injury recognition, payment summaries, translations, and a short tax memo explaining why the amount was excluded.

Sources

IRS Publication 525, Taxable and Nontaxable Income. (irs.gov)
Internal Revenue Code §104, Compensation for Injuries or Sickness. (law.cornell.edu)
Internal Revenue Code §692(c)(2), Terroristic or Military Action. (law.cornell.edu)
IRS Publication 3920, Tax Relief for Victims of Terrorist Attacks. (irs.gov)
MyArmyBenefits, Federal Taxes on Veterans’ Disability or Military Retirement Pensions. (MyArmyBenefits)

Disclaimer: This article is for general educational purposes only and is not tax or legal advice. Whether a particular payment qualifies for exclusion depends on the specific facts, including the nature of the injury, the incident that caused it, the Israeli law under which the payment is made, and the type of compensation received. Some of these situations involve questions that are not fully settled, and the IRS may take a different view in a given case. Readers should consult a qualified tax professional before taking a filing position. Reading this article does not create a client relationship with Cole & Waxman Tax Services.

The post Israeli War and Terror Disability Payments appeared first on Cole & Waxman Tax Services.

You have the following options to verify your identity:

Option 1: Verify through the IRS using your ID.Me account

• If you already have an ID.Me account that you use to access your IRS or social security information, you may be able to complete the verification online through your account.
• Guides to setting up your account:
  • Verify with ID.me if you live outside the U.S. and have an SSN – ID.me Help Center
  • Verify with ID.Me if you are a US resident
  • Documents you need to verify your identity with ID.me – ID.me Help Center

Option 2: Use the IRS Document Upload Tool

• You can upload the documents yourself via the IRS portal: Document Upload Tool | Internal Revenue Service | Notices Form
• Please note when they ask for the access code answer "no" and put in the notice/letter type 5447C
• Alternatively, we can upload the documents on your behalf. (Please note additional fees apply.)

For both options 1 and 2:

1. Allow at least 30 days to process.
2. You can then check your status on IRS Where's My Refund or request that we pull your transcript.

Option 3: Call the IRS

1. Phone number: 1-267-941-1083
2. When calling the IRS please note that there could be long wait times. We recommend the best time to call is as close to 1PM Israel time as possible, when the lines first open.

When speaking with the IRS agent:

• Let them know you are calling in response to a Letter 5447C letter for tax year 202x.
• Provide the control number as it appears on the first page of the letter.
• Be prepared to answer any question they ask from the first 2 pages on both tax returns, including:
  • complete address
  • filing status (Head of Household /Married Filing Separately / Married Filing Joint/ Single)
  • refund amount.
• If you are unsure of an answer you may ask the agent where it can be found on the return.
• Know the dates of birth for you and the children on the return
• Know your mother's maiden name
• If they ask about W-2 income, tell them since you live outside of the US your income isn’t reported on a W-2, but rather the equivalent form 106 instead.

They hopefully will not ask any more financial questions.

If your identity is successfully verified during the call, the IRS will typically inform you immediately. Your refund should then be released within approximately 6-9 weeks.

Documents Required in All Cases

Regardless of the verification method you choose, you will need:

• a copy of the 5447C letter you received
• the first 2 actual 1040 pages of your 202x and 202x tax returns

Additional Documents for ID.me or Document Upload Verification

If you are verifying online through ID.me or using the IRS Document Upload Tool, you will also need:

Two clear copies of acceptable identification, as listed in the IRS letter (for example passport and license).

The post IRS ID Verification (Letter 5447C) appeared first on Cole & Waxman Tax Services.

Why did this change?

Microsoft rolled out this update to strengthen security around shared files. Because it’s a new process, it can look unfamiliar the first time you go through it — but rest assured, your files haven’t moved and nothing on our end is broken. This guide will walk you through each step.

Step-by-Step Instructions

Step 1: Click the link

When you click the shared link from our email, you’ll be taken to a Microsoft sign-in screen. Don’t worry — this is not asking you to have or create a Microsoft account. It’s simply asking for the email address we have on file for you. Enter your email address here.

Step 2: Choose how to verify your identity

Microsoft will ask how you’d like to verify it’s really you. In our experince, the email address options is the simpliest one.

Step 3: Check your email for a code

Microsoft will send a one-time verification code to your email address.

Step 4: Copy the code

Open the email from Microsoft and copy the verification code provided.

Step 5: Enter the code

Go back to the Microsoft sign-in window and enter the code you copied.

Step 6: Choose whether to stay signed in

Microsoft may ask if you’d like to stay signed in on this device. This is entirely your choice and won’t affect your ability to access your files either way.

Step 7: You’re in!

You should now have access to your shared files.

The post How to Access Your Files appeared first on Cole & Waxman Tax Services.

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  through 2030.

The annual caps are expected to be:

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 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:

1. When will you become an Israeli tax resident?
2. Is your income active income or passive income?
3. Is the income earned from work physically performed in Israel?
4. Are you being paid by a related party?
5. Are you paying U.S. Social Security or self-employment tax?
6. Will your U.S. employer allow remote work from Israel, and under what structure?
7. 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.

The post New 2026 Israeli Tax Rules for U.S. Olim: What Americans Should Know appeared first on Cole & Waxman Tax Services.

Families coping with the trauma of a terror attack or a war injury have already endured more than enough loss and stress. They should not face the burden of unnecessary tax complications on top of their recovery.

TL;DR Practical Takeaways

In many cases, U.S. citizens in Israel do not need to pay U.S. income tax on disability compensation received because of injuries from a terrorist attack, rocket attack, military action, or other qualifying hostile action.

This exclusion is not based on the U.S.-Israel tax treaty. It comes directly from the Internal Revenue Code.

The key rule is found in IRC §104(a)(5). Disability income can be excluded from gross income if it is attributable to injuries incurred as a direct result of a terroristic or military action.

The definition of “terroristic or military action” is found in IRC §692(c)(2). That definition includes certain terrorist activity directed against the United States or any ally of the United States.

For U.S.-Israeli dual citizens, that ally language matters. Israel is an ally of the United States, so Israeli disability payments connected to qualifying terror-related or hostile-action injuries may fall within the U.S. tax exclusion.

The most important practical point: keep documentation. If the payment came from Bituach Leumi, Misrad HaBitachon, or another Israeli agency, you probably will not receive a U.S. Form W-2 or 1099. That does not mean the payment is taxable, but it does mean you need records showing why the payment was made.

Stop here if you just need the practical answer. Keep reading if you want the legal background and a deeper explanation.

The Common Mistake

Many U.S. citizens living in Israel assume that anything received from an Israeli government agency must be reported as taxable income on a U.S. tax return.

That is not always correct.

U.S. citizens are generally taxed on worldwide income. But U.S. tax law also contains specific exclusions. One of those exclusions applies to certain disability payments connected to terrorism or military action.

The right question is not “Did I receive a U.S. tax form?” The right question is “Why was this payment made?”

Example: A U.S.-Israeli dual citizen is injured in a terrorist attack and later receives monthly disability compensation from Bituach Leumi. The taxpayer does not receive a Form 1099. The U.S. tax analysis should focus on whether the payment is disability income tied directly to injuries from a qualifying terroristic or military action.

The Legal Rule

IRC §104 generally deals with compensation for injuries or sickness.

One part of that section, IRC §104(a)(5), excludes from gross income certain disability income attributable to injuries incurred as a direct result of a terroristic or military action.

IRC §692(c)(2) defines “terroristic or military action.” The definition includes certain terrorist activity directed against the United States or any of its allies.

For Americans in Israel, the phrase “or any of its allies” is the bridge between Israeli compensation payments and the U.S. tax exclusion.

Example: A U.S. citizen in Israel receives compensation from Misrad HaBitachon because of injuries sustained in a recognized hostile action. If the payment is truly disability compensation connected directly to that injury, there may be a strong basis to exclude it from U.S. taxable income under IRC §104(a)(5).

This is separate from the U.S.-Israel tax treaty. The exclusion comes from U.S. domestic tax law.

What Types of Payments May Qualify?

The strongest case is for payments that are clearly disability compensation for physical injury or sickness caused by a terrorist attack, rocket attack, military action, or other qualifying hostile action.

The payer may be Israeli rather than American. The payment may come from Bituach Leumi, Misrad HaBitachon, or another Israeli program. The payment may be monthly or lump-sum.

The label on the payment matters less than the legal reason for the payment.

Example: A taxpayer receives an Israeli disability award after being injured in a rocket attack. The award letter states that the payment is based on the injury and the taxpayer’s recognized disability status. That documentation is very different from a general welfare payment, unemployment benefit, or ordinary pension.

Not every payment qualifies. Regular pensions, lost wages, unemployment benefits, general support payments, and unrelated disability benefits may require different treatment.

Documentation Is the Key

Israeli agencies usually do not issue U.S. tax forms. That means the taxpayer needs to build a file.

The file should include the Israeli award letter, the agency decision, medical or disability determination, proof of the event that caused the injury, and annual payment totals. If the documents are in Hebrew, keep an English translation or summary.

A taxpayer claiming the exclusion should be able to show what happened, what injury resulted, who paid the award, and why the payment was made.

Example: A taxpayer receives ₪80,000 during the year from an Israeli agency. The tax file should not simply say “Bituach Leumi payment.” It should identify whether the amount was disability compensation, income replacement, pension, reimbursement, or another type of payment.

For practical U.S. tax filing, the preparer should keep a short workpaper explaining the exclusion and citing the relevant law. That workpaper should connect the facts to IRC §104(a)(5) and IRC §692(c)(2).

Practical Bottom Line

For U.S. citizens in Israel, terror-related disability compensation should not automatically be treated as taxable income.

There is a specific U.S. tax exclusion that may apply when the payment is disability income tied directly to injuries from a qualifying terroristic or military action. The law expressly includes actions directed against U.S. allies, which is especially relevant for Israel.

The best result comes from matching the payment to the law and keeping clear documentation before the IRS ever asks.

Three Action Steps

1. Identify the type of payment. Separate disability compensation from pensions, unemployment, lost wages, reimbursements, and general support payments.
2. Save the documents. Keep the Israeli agency approval, medical/disability determination, hostile-action recognition, payment summaries, and translations.
3. Review before filing. Do not assume the payment is taxable, and do not assume it is excluded. Have the facts reviewed under IRC §104(a)(5), IRC §692(c)(2), and the relevant IRS guidance.

Sources

IRS Publication 525, Taxable and Nontaxable Income:
https://www.irs.gov/publications/p525#en_US_2022_publink1000229319

Internal Revenue Code §104:
https://www.law.cornell.edu/uscode/text/26/104

Internal Revenue Code §692(c)(2):
https://www.law.cornell.edu/uscode/text/26/692#c_2

IRS Publication 3920, Tax Relief for Victims of Terrorist Attacks:
https://www.irs.gov/publications/p3920

MyArmyBenefits, Federal Taxes on Veterans’ Disability or Military Retirement Pensions:
https://myarmybenefits.us.army.mil/Benefit-Library/Federal-Benefits/Federal-Taxes-on-Veterans-Disability-or-Military-Retirement-Pensions

Disclaimer: This article is for educational purposes only. It is not tax advice or legal advice. Taxpayers should consult a qualified tax and/or legal professional regarding their specific facts, documentation, and filing position.

The post War and Terror-Related Injury and Disability Payments: U.S. Tax Treatment for Americans in Israel appeared first on Cole & Waxman Tax Services.

For many Americans living overseas, especially those dealing with endless U.S. tax reporting, FATCA headaches, and foreign banking friction, that reduction will feel dramatic. But cheaper does not mean simple, and it definitely does not mean risk-free. Renouncing U.S. citizenship remains one of the most serious legal and tax decisions a person can make.

Does the New $450 Fee Apply to Me?

The practical takeaway is that the lower fee applies to renunciation services provided on or after April 13, 2026. Since renunciation must be completed in person at a U.S. embassy or consulate abroad, the key date is generally the date of the appointment at which the renunciation is actually carried out, not when you first emailed the embassy or started gathering documents. The final rule itself is effective April 13, 2026, and the process requires an in-person appearance before a consular or diplomatic officer.

What Exactly Is the $450 Paying For?

The fee covers the administrative processing of a request for a Certificate of Loss of Nationality, usually called a CLN. That certificate is the formal State Department document confirming that the loss of nationality has been approved. The Federal Register rule specifically describes the fee as the fee for administrative processing of a request for a CLN.

Is There a Minimum Age?

This is where many people get tripped up. There is no simple rule that a parent can just sign for a child and renounce the child’s citizenship. In fact, State Department guidance says the opposite: parents may not take the oath of renunciation or otherwise seek to relinquish the U.S. citizenship of their minor children. State Department also says that minors who seek to renounce must show that they are acting voluntarily and fully understand the consequences, that children under 16 are presumed not to have the required maturity, and that minors under 18 receive extra scrutiny.

So, for children, the question is not “is the fee cheaper now?” but rather “is renunciation even realistically available here?” In many cases, the practical answer is that families should proceed very cautiously and get individualized legal advice before even considering it.

What If I Already Paid $2,350?

The final rule does not create an automatic refund for people who already paid the higher fee. So if you paid $2,350 before the effective date, the conservative answer is: do not assume you are getting money back.

That said, there is an organization called the Association of Accidental Americans that has been involved in litigation challenging the old fee and seeking relief. News reports and the organization’s own materials indicate that refund-related litigation is still pending. That may be worth watching, but at this stage it is best viewed as a long shot rather than money in the bank.

Does the Lower Fee Change the Exit Tax?

No. The fee reduction does not change the expatriation tax rules. The CLN fee is a State Department consular fee. The exit tax is a separate tax concept under the Internal Revenue Code, and Form 8854 is still the key IRS filing for expatriates. IRS guidance says Form 8854 is used to certify compliance with U.S. tax obligations for the five years before expatriation and to satisfy expatriation reporting requirements.

So if you are asking, “Now that the fee is cheaper, can I ignore the tax side?” the answer is no. The cheaper fee may lower the cost of getting to the door, but it does not change what is waiting on the other side. For more on that issue, see your existing article on expatriation and exit tax.

What Might I Gain by Renouncing?

For some Americans abroad, the biggest benefit is not a one-time tax result but an ongoing reduction in administrative burden. U.S. citizens living overseas often remain stuck with annual U.S. tax and information reporting, even when they live permanently in another country and even when much of their financial life is local, not American. This can include Form 1040 filing, FBAR reporting, and complex international forms tied to foreign companies, foreign funds, and other cross-border assets. The Federal Register itself acknowledged anecdotal evidence of tax-related difficulties experienced by U.S. nationals abroad, including difficulties related in part to FATCA.

Renunciation may also make life easier with foreign banks and investment platforms. Many non-U.S. financial institutions are wary of U.S. citizens because of FATCA and related compliance burdens. That does not mean every problem disappears after renunciation, but it may make it easier to open or maintain non-U.S. banking relationships and to answer “no” to citizenship questions on financial onboarding forms truthfully. The State Department specifically noted public comments describing tax-related difficulties faced by U.S. nationals abroad.

In practical terms, people considering renunciation are often trying to escape not just one tax bill, but a lifetime of compliance exposure: self-employment tax, PFIC reporting and tax, NIIT, Form 5471 issues, GILTI issues, and capital gains mismatches between U.S. and local law. Whether renunciation solves more problems than it creates depends heavily on your facts.

What Might I Lose by Renouncing?

The most obvious loss is that you are no longer a U.S. citizen. That means no guaranteed right to enter the United States as a citizen and no unrestricted right to live and work there as a citizen. Former U.S. citizens traveling on another passport may need to rely on a visa or, if eligible, ESTA under the Visa Waiver Program. The official ESTA site currently shows an application fee of $40.27. ESTA is not a work authorization and is used for short visits under the Visa Waiver Program.

That loss matters more for some families than others. If you may want to relocate to the U.S. later, accept employment there, start a business there, or keep maximum flexibility for your children, renunciation may close doors that are expensive or impossible to reopen. Even for travel, former citizens should expect added questions in some cases, and future U.S. entry will no longer be on the same terms as before.

There can also be serious investment and estate-planning downsides. After renunciation, U.S.-source investments, U.S. real estate, withholding tax, and U.S. estate tax exposure may need to be analyzed differently. For some people, especially those with U.S. assets or expected U.S. inheritances, that downside can outweigh the compliance relief.

Is This a Good Deal for You?

The fee is clearly a better deal than it was a month ago. Going from $2,350 to $450 is a major reduction, and for some people it removes a real financial barrier. But the more important question is whether renunciation itself is a good deal for you. That answer depends on your age, your family’s future, your immigration plans, your net worth, your U.S. tax exposure, your compliance history, your banking situation abroad, and whether you are likely to regret losing U.S. citizenship later.

For adults who are permanently settled abroad, fully understand the tax consequences, do not plan to work in the United States, and are comfortable giving up U.S. citizenship, the lower fee may make renunciation more attractive than before. For children, the analysis is much more delicate, and in many cases the legal and practical obstacles are substantial.

Final Thoughts

The new $450 fee is real, and for many expats it is welcome news. But this is not a clearance sale on paperwork. Renunciation is still a permanent, high-stakes step with tax, immigration, financial, and family consequences. The price of the consular process is down. The importance of the decision is not.

Important disclaimer: This article is for educational purposes only. It is simplified, may omit important exceptions, and may contain errors. It is not tax advice, legal advice, financial advice, or immigration advice. Before acting, consult qualified professionals who can evaluate your specific facts, including the expatriation rules, Form 8854, exit tax, immigration consequences, estate tax exposure, and any issues affecting your children.

More Resources:

1. U.S. Embassy, Jerusalem - https://il.usembassy.gov/renouncing-u-s-citizenship/
2. Issues for children born abroad: US–Israeli Citizens — The Next Generation - Cole & Waxman Tax Services
3. The expatriation process and tax issues: Expatriating from the United States: What You Must Know Before You Cut Ties - Cole & Waxman Tax Services

The post Cost of Renouncing U.S. Citizenship Is “On Sale” — But Is It a Good Deal for You or Your Children? appeared first on Cole & Waxman Tax Services.

IRA Required Minimum Distributions (RMDs): What You Need to Know

If you own an Individual Retirement Account (IRA), you may have annual tax obligations related to Required Minimum Distributions (RMDs).

Many taxpayers assume that the bank or investment firm automatically handles these requirements. In reality, the responsibility ultimately rests with the taxpayer.

This page explains when RMDs may apply and what information we may need from you when preparing your tax return.

For more background and details, see this article: Required Minimum Distributions (RMDs) – What U.S. Expats in Israel Need to Know - Cole & Waxman Tax Services

What Is a Required Minimum Distribution?

Under U.S. tax law, IRA owners and certain IRA beneficiaries must withdraw a minimum amount each year from retirement accounts once they reach the applicable starting age, or after inheriting an IRA.

These withdrawals are called Required Minimum Distributions (RMDs).

If the required amount is not withdrawn by the applicable deadline, the IRS may impose a penalty on the shortfall.

Under current law:

• The penalty is generally 25% of the amount that should have been withdrawn, and
• It may be reduced to 10% if the error is corrected promptly.

Your Responsibility

It is the taxpayer’s responsibility to determine:

• Whether an RMD is required for the current year, and
• Whether the correct amount has been withdrawn by the deadline.

Financial institutions may provide estimates, but they do not always calculate the correct amount, particularly when multiple accounts or inherited IRAs are involved.

Traditional, SEP, and SIMPLE IRAs

Owners of Traditional, SEP, and SIMPLE IRAs generally must begin taking RMDs once they reach the required age under current law.

To determine whether an RMD is required and how much must be withdrawn, we may need the following information:

• Confirmation of whether you reached RMD age during the tax year
• The December 31 balance of each IRA from the prior year
• The total distributions taken during the current year

If you would like our assistance calculating your RMD, please provide:

• IRA statements showing December 31 year-end balances for the prior year
• Distribution confirmations for the current year
• Note - this is outside the scope of the standard tax preparation agreement. Your tax accountant will let you know what fees apply for this additional service.

Inherited IRAs

Inherited IRAs are subject to special distribution rules, and these rules vary depending on several factors, including:

• Whether the original IRA owner died before or after their Required Beginning Date
• Your relationship to the deceased
• Whether you qualify as an Eligible Designated Beneficiary

For inherited IRAs, please provide the following information:

• Date of birth of the original IRA owner
• Date of death
• Your relationship to the deceased
• December 31 account balances for each year
• Distributions taken during the year

Failure to comply with inherited IRA distribution rules may also result in penalties.

Note - this is outside the scope of the standard tax preparation agreement. Your tax accountant will let you know what fees apply for this additional service.

Roth IRAs

Roth IRA owners generally do not have lifetime RMD requirements.

However, beneficiaries of inherited Roth IRAs may still be required to take distributions.

Additional IRS Guidance

The IRS provides detailed information on Required Minimum Distributions here:

IRS Required Minimum Distribution FAQs
https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

Disclaimer

Service
Our preparation of your tax return does not automatically include monitoring or calculating your RMD obligations.

If you would like our assistance reviewing or calculating your RMD requirements, please submit the relevant IRA statements and notify our office.

Educational Disclaimer

The information on this page is provided for general educational and informational purposes only. It is not intended as tax, legal, or financial advice and should not be relied upon as a substitute for advice from a qualified professional.

Tax rules relating to retirement accounts can be complex and depend on each taxpayer’s specific circumstances. You should consult your personal tax advisor or accountant for guidance regarding your individual situation.

The post IRA Required Minimum Distributions (RMDs): What You Need to Know appeared first on Cole & Waxman Tax Services.

Over the past year, we’ve been getting the same question again and again from U.S. citizens living in Israel and other countries:
“How are we supposed to receive IRS refunds if we don’t have a U.S. bank account?”

That question just became a lot more urgent.

Under Executive Order 14247 – Modernizing Payments To and From America’s Bank Account, the U.S. government has directed federal agencies, including the Internal Revenue Service, to move away from paper checks and toward electronic payments—primarily direct deposit to U.S. bank accounts.

For taxpayers living abroad, this creates a very real, very practical problem.

What EO 14247 Means in Practice

The IRS has announced that it intends to phase out paper refund checks, starting with individual taxpayers. While paper checks have not been eliminated entirely yet, the direction is clear:

• Electronic refunds are preferred
• Paper checks are becoming slower, less reliable, and more likely to be delayed
• Overseas taxpayers without U.S. banking access are disproportionately affected

For many U.S. citizens in Israel, the traditional “just wait for the check” approach is no longer realistic.

Why This Is a Big Issue for U.S. Citizens Living Abroad

Most of our clients in Israel (and elsewhere overseas):

• Do not maintain a U.S. residential address
• Cannot appear in person at a U.S. bank branch
• Are therefore unable to open a standard U.S. bank account

As a result, even taxpayers who are fully compliant—and entitled to substantial refunds—may face months of delays or administrative complications after filing.

Importantly, this issue arises after the return is filed. Once a refund is in limbo, fixing the payment method can be slow and frustrating.

Are Non-U.S. Residents Exempt?

At this stage:

• There is no blanket exemption for U.S. citizens living outside the United States
• The IRS has not issued a clear carve-out for “foreign address” taxpayers
• Any future accommodation remains speculative

In other words: do not assume the IRS will solve this for you automatically.

Refund Options for U.S. Citizens Living in Israel

Below are the realistic options currently available, along with their pros and cons.

Option 1: File Normally and Wait for a Paper Check

How it works:
You file your return without U.S. bank details. Eventually, the IRS issues a paper refund check by mail.

What to expect:

• Refunds often arrive months later than usual
• International mail delays, lost checks, and reissuance requests are common
• This option is becoming increasingly unreliable

Bottom line:
Still possible—but expect delays and uncertainty.

Option 2: Open a Traditional U.S. Bank Account

Why it’s difficult:

• Most U.S. banks require in-person branch visits
• Proof of U.S. address is usually mandatory
• Not practical for most long-term overseas residents

Bottom line:
Feasible for a small minority. Not a general solution.

Option 3: Use a FinTech Platform (e.g., Wise)

For many U.S. citizens living abroad, this is currently the most practical workaround.

Platforms like Wise can provide:

• U.S. routing and account numbers
• Compatibility with IRS direct deposit
• Access for residents of Israel and many other countries

High-Level Wise Setup Overview

(Exact requirements may change and are subject to Wise approval.)

• Initial funding (e.g., ~85 ILS by bank transfer; funds remain usable)
• Account holder name must match the bank account
• Personal details (name, gender, address)
• Compliance questions (employment, AML)
• SSN
• Proof of address (utility bill / bank statement / tax notice)
• Tax residency (typically U.S. + Israel)
• Identity documents (Israeli passport / ID / driver’s license)
• Short video verification via phone or laptop
• Verification period of several days

Important notes:

• Wise is a financial technology platform, not a bank
• Funds are not FDIC-insured
• Approval is not guaranteed and depends on Wise’s internal compliance review
• Visit WISE.com for more infomation
• Disclaimer: We have no relationship with Wise and cannot be responsible for any risks, limitations, or outcomes associated with using their platform; it is presented solely as one possible solution for receiving IRS refunds.

Why This Matters for Taxpayers (and Advisors)

Handled proactively, this change can actually improve the taxpayer experience:

• Faster receipt of refunds
• Lower international transfer costs
• Fewer follow-ups with the IRS
• Less operational friction

Ignored, it can lead to:

• Refunds stuck in limbo
• Client frustration
• Increased administrative workload
• Erosion of trust in the filing process

Are There Other Alternatives Besides Wise?

Yes—depending on the taxpayer’s profile and availability:

• Traditional U.S. banks (e.g., Bank of America, Chase, Wells Fargo)
• Other platforms offering U.S. account details (e.g., Revolut, Payoneer, Mercury). Most of these are problematic without a US address. Let us know if you have any success!
• Hybrid or institution-specific solutions
• The State Department Federal Credit Union offers accounts, but they require a US mobile phone number, and a US address with 3rd party verification. See: https://www.sdfcu.org/

Each option comes with different eligibility rules, costs, and risks.

One Important Clarification

This issue primarily affects individual taxpayers.
In many cases, the IRS is expected to continue issuing paper checks to foreign companies, though this too may evolve.

Bottom Line

Executive Order 14247 doesn’t change who gets a refund—but it is changing how refunds are paid.

For U.S. citizens living in Israel and overseas, planning ahead is no longer optional. Deciding before filing how a refund will be received can prevent months of unnecessary delays and stress.

Disclaimer

The information provided in this article is for general informational purposes only and does not constitute legal, tax, financial, or regulatory advice. While efforts have been made to ensure accuracy, IRS policies, procedures, and interpretations—including those related to Executive Order 14247—are subject to change, delay, exception, or modification without notice.

Opening or using any financial account or service (including Wise or any other third-party provider) is subject to the provider’s terms, KYC/AML procedures, eligibility requirements, and regulatory constraints. We do not control, manage, or guarantee the approval, functionality, timing, or outcome of any third-party service.

FinTech platforms are not traditional banks, and accounts may not be insured by the FDIC. Taxpayers are solely responsible for evaluating whether a particular solution is appropriate for their circumstances and for understanding any tax, regulatory, or banking implications in both the United States and their country of residence.

Additional Disclaimer – No Endorsement / Independent Decision-Making

For the avoidance of doubt, we do not endorse, recommend, or guarantee any specific bank, financial institution, or service provider, including any U.S. bank or financial technology platform referenced in this article. Any examples mentioned are provided solely for informational purposes based on current market availability and general experience, and should not be interpreted as a recommendation or preferred solution.

Each taxpayer’s circumstances are unique. Taxpayers are solely responsible for conducting their own due diligence, evaluating available options, understanding applicable terms and conditions, and assessing the legal, regulatory, tax, and financial risks associated with opening or using any account or service.

All decisions relating to the selection and use of banking or financial services—and all resulting risks, costs, delays, limitations, or consequences—remain entirely the responsibility of the taxpayer. We disclaim any responsibility or liability for outcomes arising from a taxpayer’s choice to engage with any third-party provider.

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