Social Security Benefits

for U.S. Citizens Living in Israel: Navigating New Opportunities

For U.S. citizens living in Israel, understanding how to maximize Social Security benefits is key to a secure and comfortable retirement. Recent legislative changes in the United States, combined with the provisions of the U.S.-Israel tax treaty, have created new opportunities for American expats to optimize their retirement income. In this blog post, we’ll explore the impact of the “One Big, Beautiful Bill,” the elimination of the Windfall Elimination Provision (WEP), and the tax treaty benefits that can help U.S. citizens in Israel make the most of their Social Security payments.

1. The Impact of the “One Big, Beautiful Bill”

In July 2025, the U.S. Congress passed the “One Big, Beautiful Bill,” a sweeping tax and spending package that includes significant provisions for seniors, particularly those receiving Social Security benefits. While President Donald Trump campaigned on eliminating federal taxes on Social Security benefits entirely, the final legislation doesn’t fully achieve this goal due to constraints in the Senate’s budget reconciliation process and the Byrd Rule, which limits changes to Social Security in such bills. Instead, the bill introduces a temporary “senior bonus” deduction, offering substantial tax relief for many retirees.What Does the Senior Bonus Mean for U.S. Citizens in Israel?

• Enhanced Deduction: The bill provides an additional standard deduction of up to $6,000 for individuals aged 65 and older, effective from 2025 through 2028. For single filers earning $75,000 or less and married couples earning $150,000 or less, this deduction can significantly reduce taxable income, potentially shielding Social Security benefits from federal taxes.
• Impact on Taxation: Approximately 88% of seniors, including those receiving the average Social Security benefit of $24,000 annually, may see their federal tax liability on benefits eliminated when combining this new deduction with the existing standard deduction. For married couples with a combined Social Security income of $48,000, the deduction can similarly reduce or eliminate federal taxes on their benefits.
• Limitations: Wealthier seniors with incomes above the thresholds ($75,000 for individuals, $150,000 for couples) will see the deduction phase out, meaning higher-income retirees may still face federal taxes on up to 85% of their Social Security benefits. Additionally, low-income seniors who already pay no federal taxes on their benefits won’t see additional relief from this provision. 
• Tax Treaty Benefits: See details below.  For taxpayers living full-time in Israel, these benefits typically override any of the above mentioned limitations.

For U.S. citizens in Israel, this temporary deduction can provide meaningful savings, especially for middle-income retirees. However, since the provision expires in 2028, expats should plan for potential changes in tax policy and consult with a tax professional to optimize their financial strategy.

2. Elimination of the Windfall Elimination Provision (WEP)

One of the most significant changes for U.S. citizens in Israel is the repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) through the Social Security Fairness Act of 2023, effective January 1, 2024. These provisions previously reduced Social Security benefits for individuals receiving pensions from non-Social Security-covered employment, such as Israel’s Bituach Leumi or private Israeli pension plans.How the WEP Repeal Benefits Expats in Israel

• Full Benefits Restored: Before the repeal, WEP could reduce Social Security benefits by up to 50% for those receiving foreign pensions, including Israel’s Bituach Leumi. Now, U.S. citizens in Israel who contributed to Israeli pension systems can receive their full Social Security entitlement without reductions. For example, Rivka, a U.S. citizen who paid into Bituach Leumi for over 30 years, now collects her full Social Security payment without any WEP offset.
• Retroactive Adjustments: Starting February 25, 2025, the Social Security Administration (SSA) began adjusting monthly benefit payments for those previously affected by WEP or GPO. Beneficiaries may receive a one-time payment to cover retroactive benefits, deposited into the bank account on file with the SSA.
• Who Benefits?: The repeal particularly helps retirees who worked in Israel or other countries in jobs not covered by U.S. Social Security taxes, such as teachers, firefighters, police officers, or federal employees under the Civil Service Retirement System. However, those in Social Security-covered employment (about 72% of public employees) were not affected by WEP and won’t see changes.

For U.S. expats in Israel, this repeal is a game-changer, ensuring that their Social Security benefits are no longer diminished by participation in Israel’s pension system. If you’re affected, check your SSA account for updates and ensure your bank details are current to receive any retroactive payments.

3. Tax Treaty Benefits: U.S.-Israel Income Tax Treaty

The U.S.-Israel Income Tax Treaty, established in 1995, provides critical protections for U.S. citizens living in Israel, particularly regarding Social Security benefits. Article 21 of the treaty ensures that these benefits are treated favorably, reducing the risk of double taxation and simplifying financial planning for expats. Key Tax Treaty Benefits for Social Security

• Exemption from Israeli Taxes: Under Article 21, U.S. Social Security benefits are exempt from Israeli income taxes. This means that your benefits arrive in Israel tax-free, providing significant savings. For example, Yael, who relocated to Haifa in 2022, discovered that her Social Security payments were not subject to the 25% Israeli tax she initially expected, thanks to proper reporting under the treaty.
• No Double Taxation: While the U.S. taxes its citizens on worldwide income, including Social Security benefits, the treaty ensures that Israel cannot tax these benefits, eliminating the risk of double taxation. However, note that Israel does not have a totalization agreement with the U.S., so dual citizens may still face Social Security taxes (U.S. self-employment tax and Israeli Bituach Leumi) on other income sources unless structured carefully.
• Direct Deposit to Israeli Banks: The SSA’s international direct deposit program allows U.S. citizens in Israel to receive Social Security payments directly into their Israeli bank accounts using IBAN and SWIFT codes. This eliminates the need for a U.S. bank account, making it easier to access benefits locally. You can set this up via Form SSA-1199 or through your My Social Security online account.

For dual U.S.-Israeli citizens, the treaty’s benefits are somewhat limited, as certain provisions don’t apply to dual citizens to prevent tax avoidance. However, the exemption of Social Security benefits from Israeli taxes remains a significant advantage. Consulting with a tax professional familiar with the treaty can help you navigate these nuances and avoid double taxation on other income sources.Practical Tips for U.S. Citizens in Israel

• Set Up Direct Deposit: Ensure your Social Security payments are deposited into an Israeli bank account by providing your IBAN and SWIFT code to the SSA. This streamlines access to your funds without needing a U.S. account.
• Monitor SSA Notices: If you were previously affected by WEP or GPO, watch for SSA notifications regarding benefit adjustments and retroactive payments starting in February 2025. Update your My Social Security account to stay informed.
• Leverage the Senior Bonus Deduction: If your income qualifies, take advantage of the temporary $6,000 senior deduction to reduce your federal tax liability. Plan for its expiration in 2028 by consulting a tax advisor.
• File Correctly for Tax Treaty Benefits: When filing U.S. taxes, report your Social Security benefits accurately to claim the Israeli tax exemption under the U.S.-Israel tax treaty. Consider amending past returns (up to three years) if you’ve overpaid taxes on benefits.
• Seek Professional Advice: Work with a tax professional experienced in U.S.-Israel cross-border taxation to optimize your benefits and avoid pitfalls, especially regarding Bituach Leumi and U.S. self-employment taxes.

Conclusion: A Brighter Retirement for U.S. Expats in Israel

The combination of the “One Big, Beautiful Bill,” the repeal of the Windfall Elimination Provision, and the U.S.-Israel tax treaty creates a favorable landscape for U.S. citizens living in Israel. The senior bonus deduction offers temporary tax relief, the WEP repeal ensures full Social Security benefits for those with Israeli pensions, and the tax treaty protects your benefits from Israeli taxation. By staying informed and working with professionals, you can maximize your retirement income and enjoy your time in Israel—whether sipping espresso in Tel Aviv or exploring the streets of Jerusalem—with greater financial peace of mind.

For more details on the Social Security Fairness Act, visit the SSA’s official page (www.ssa.gov) (www.ssa.gov), or email us info@colewaxman.com to schedule a consultation.