US Tax Updates 2025

U.S. citizens and residents living in Israel or another country outside of the U.S. are responsible to file U.S. tax returns and report worldwide income.

In addition, all U.S. citizens and residents are liable to report their foreign bank and financial account balances via an annual FBAR (Foreign Bank Account Report)if their combined foreign assets exceed $10,000.

Highlights of New U.S. Tax Provisions

• The Child Tax Credit for 2026 and 2025 is $2200. The refundable additional child tax credit has increased to $1,700 per child under age 17. Adjustments may be made to these numbers based on your adjusted gross income.

• In Trump's Big Beautiful Bill, a new program has been set up for U.S. citizens born between January 1, 2025, and December 31, 2028. This program allows for a one-time federal deposit of $1,000 into a special savings plan. In addition, parents/guardians and employers can contribute up to $5,000/year; no earned income required. Accounts are expected to be available mid-2026 with an online portal (trumpaccounts.gov) and IRS Form 4647 will be used for setting up the account. Growth will be tax deferred and taxable upon withdrawal. Monies will not be available before age 18.

• The IRS has issued additional crypto guidelines and plans to continue examining cryptocurrency transactions in search of under-reporters. All crypto gains must be reported on tax returns.

• The IRS is allowing U.S. citizens to sign up for an IRS online account via ID.me (an online company that allows taxpayers to provide proof of their identity online) to access individual account information including balances, payments, refund history, ID verification, and more.

• Please note that the IRS has updated its refund policy and now requests that refunds be issued via direct deposit to a U.S. bank account. If direct deposit is not available, paper checks may be subject to significant delays.

• Windfall Elimination Provision (WEP), which became law during the Regan administration, adjusted Social Security payments by pensions received in Israel. On January 5, 2025, President Biden signed into law the Social Security Fairness Act which repealed WEP. This is retroactive to Social Security payments starting on or after January 1, 2024.

Israeli Tax Tidbits

• New Olim and returning residents arriving after 1/1/2026 will have a disclosure requirement to the Israel Tax Authority of their foreign income and assets. The 10-year exemption rule remains intact for tax exemptions on foreign income and assets, but the new disclosure rule will be in effect. New residents will be required to file annual tax returns and, in many cases, capital/wealth declarations.

• Payments made to the Israeli Tax Authority before January 31, 2026, for taxes incurred in 2025, will be exempt from linkage and interest.

• To help reduce your overall Israeli tax burden you can make contributions before December 31, to your retirement funds. Depending on your gross income, there is a maximum amount that you can benefit from when you contribute to your Kupat Gemel or Keren Hishtalmut.

• A tax credit of 35% of your charitable donations against your overall Israeli Income tax liability is available provided you have contributed more than NIS 207 and that the charities are authorized under section 46(A) of the income tax ordinance. There is a maximum contribution allowed which is either 30% of taxable income or NIS10,354,816.

• Inventory count - In a business that has inventory, it is necessary to conduct a complete count of the inventory (known as a physical count). The inventory count should be accurate for 12/31/2025

(The physical count could be done starting from 12/20/25 until 01/10/26 on one condition: that there would be an exact listing of the inventory transactions on the 12/31/25). Inventory value should be adjusted to 12/31/2025.

• Patur Osek - Since 2016, an Osek Patur must report to the VAT authorities. The VAT Report needs to be submitted by 3/31/26. The maximum income for a Patur Osek is NIS 122,833 for 2025.

• The 2025 Israeli Income tax rates are listed below.

Marginal Tax Bracket Total Income

• NIS:10% 84,120;

• 14% 84,121 – 120,720

• 20% 120,721 – 193,800

• 31% 193,801 – 269,280

• 35% 269,281 - 560,280

• 47% 550,281 – 721,560;50% 720,561

An additional 3% tax will be added on taxable income above NIS 721,560

• Rent of personal residence will be exempt up to NIS 5,654 per month in 2025. Clients who chose the 10% tax rate for rent should have paid a 10% deposit by 1/31/2026.

KEEPING PERSONAL INFORMATION SAFE

There are many articles you can research on the web on the topic of safeguarding your personal information.

Here are some tips:

• The IRS never calls or emails a taxpayer. Do not respond to any IRS email requests.

• Do not disclose your Social Security number or birthdate on the phone unless you initiate the call, and it is necessary.

• Do not send credit card information by email or social platforms.

• Have an updated firewall and anti-virus protection installed on all computers.

• Safeguard your Social Security number and shred all notices stating Social Security numbers before disposing of them.

Alan (Avraham) Deutsch is a CPA from New York. He has a BS in accounting from New York University (NYU), an MBA in Finance from NYU and a Post-master's degree in taxation from Pace University. He has more than 30 years' experience working for U.S. and Israeli CPA firms and established his own tax practice, Deutsch and Associates. Alan specialized in U.S. and Israeli income tax planning and compliance. He is a member of the New York State Society of CPAs, the American Certified Public Accountants, and the Society of Trust & Estate Planners.

The materials provided in this article and any comments or information provided for educational purposes only, and nothing conveyed or provided should be considered legal, accounting or tax advice.