Three new laws have created a wave of excitement about making Aliyah in 2026. The income tax exemption, the Bituach Leumi break, the middle tax brackets widening. I've written about all of them enthusiastically because they are, genuinely, the biggest changes to Aliyah tax planning in a decade.

You can really make over $185K per year and pay zero income tax in the US and Israel. In fact, you can make much more and still pay zero income tax. But planning needs to be done, and there are steps you need to take. I keep getting calls from people who are excited and imagine that they can just show up and go to the beach. Here are the biggest hurdles to get past before you pack your beach bags.

Key Points

  • U.S. filing obligation: Every U.S. citizen must file a 1040 every year regardless of where they live or how much Israeli tax they paid. The new laws don't change this. And if you don't pay Israeli taxes, you still owe US taxes.
  • Taking the foreign exclusion is difficult the first year: If you come in 2026, you can only exclude your foreign earned income if one of two things happen. You either spend ample time outside of the US for the next year, or you extend your 2026 tax return much further into the future.
  • State tax: Convenience of employer rules are a pain! New York and several other states may still claim your income as taxable in the state if you move out.
  • Reporting in Israel: If you come in 2026, you are exempt from taxes in Israel. But you still have to file and report all your income.

You Still File a U.S. Return Every Year. And You May Still Owe.

The United States taxes its citizens on worldwide income regardless of where they live. Making Aliyah does not change your U.S. citizenship. The new Israeli exemption does not make your U.S. filing obligation go away.

Here is the part people miss. Under the old regime, most olim paid significant Israeli tax on their Israeli-source income. That Israeli tax generated Foreign Tax Credits on their U.S. return, which wiped out most or all of the U.S. liability. You paid Israel, you credited it against the U.S., and your net result was roughly the higher of the two rates.

Under the new regime, Israeli tax on earned income drops (up to certain amounts) to zero for qualifying olim. Zero Israeli tax means zero Foreign Tax Credits. So now you need another way to shelter that income from U.S. tax, or you will owe the IRS the full amount.

Form 2555, the Foreign Earned Income Exclusion, is the answer for most people. But it is not automatic. You have to qualify for it, you have to elect it, and you have to plan around it. If you just assume the new Israeli exemption handles everything, you will get a surprise when you file your 1040.

Taking the Foreign Exclusion Is Harder Than You Think in Year One

Everyone hears “You don't have to pay tax on ~$132,000” and assumes this means they don't have to file, and automatically get this benefit. It does not work that way, especially in the year you make Aliyah.

To claim the Foreign Earned Income Exclusion, you need to pass one of two tests. The physical presence test requires you to be physically present in a foreign country for 330 full days during any 12-month period. The bona fide residence test requires you to be a bona fide resident of a foreign country for an entire calendar year.

If you make Aliyah in July 2026, your first possible 12-month qualifying period runs from roughly July 2026 through July 2027. That period straddles two tax years. The 330 days of physical presence outside the U.S. won't be complete until mid-2027. So when April 2027 rolls around and it is time to file your 2026 return, you haven't finished the test yet.

You have two options. First, you can extend your 2026 return, and make sure you stay out of the U.S. for 330 days. That is easier than said though when you first come on Aliyah. No long visits back for the summer or work. This is usually where people get tripped up. This is allowed but it requires planning and it means your 2026 return may get filed later than you are used to.

Second, you can try to qualify under the bona fide residence test instead. But that test requires a full calendar year of foreign residence, which means the earliest it can apply for most mid-year olim is January 1 through December 31, 2027. There is a special IRS extension for this exact purpose with Form 2350. Still, it is not your usual filing.

Lastly, even if you do qualify for the 330 test, which 330 days are included is very important. You are likely to only be able to use a portion of the annual foreign income exclusion.

The bottom line is that year one of Aliyah and Form 2555 are awkward together. It works out eventually, but it requires deliberate planning around the timing. If you book a trip back to the States for Thanksgiving and then again for a family event in February, you may be eating into your 330 days without realizing it. 2027 will be much smoother, but if you want this in 2026, reach out and let's plan properly.

Convenience of Employer Rules Are a Real Problem

You moved to Israel, and are now living in Beit Shemesh working remotely for your old NY based employer. Israel is giving you this very nice tax break, and you think you are done with New York.

New York disagrees.

Several U.S. states have what is called a “convenience of the employer” rule. If you work remotely for an employer based in one of these states, and you are doing so for your own convenience rather than your employer's business necessity, the state treats your wages as if they were earned in the state. Even if you are sitting in your apartment in Beit Shemesh.

New York is the most aggressive about this. Remember how many people moved out of NY during Covid? NY became much more aggressive after that. If your employer's office is in Manhattan and you moved to Israel because you wanted to, not because your employer required you to work from Israel, your payroll will likely source your wages to New York and withhold taxes at source. At New York's top rate of 10.9%, on a $185,000 salary that is roughly $20,000 per year going to a state you thought you left behind.

This is not theoretical. It happens all the time. The fix usually involves getting your employer to formally reassign your work location to another location, but most payroll systems don't have foreign countries like Israel as an option. It is very important to either take into account the state taxes or have a conversation with your finance department before the move. Don't imagine you can just file after the fact and get your taxes back from NY. That is not an easy task to pull off.

If you are moving from New York, Connecticut, Pennsylvania, or Delaware, ask about the convenience rule before you get on the plane. Not after.

You Still Need to Report in Israel

This one catches people off guard. The new March 2026 law exempts qualifying earned income from Israeli income tax. But it does not exempt you from filing an Israeli tax return.

Starting January 1, 2026, the reporting exemption that new olim previously enjoyed for ten years has been repealed. This was a separate amendment passed in April 2024 that took effect at the start of 2026. Under the old rules, new olim did not have to report their foreign income or foreign assets to the Israeli Tax Authority for ten years. That is modified.

So here is what 2026 looks like for a new oleh. Your Israeli-source earned income is exempt from tax up to the caps for 5 years. Your foreign-source income is exempt from Israeli tax for the first 10 years. But you must report all of it. Worldwide income, foreign assets, foreign bank accounts, foreign trusts, foreign companies. The Israeli Tax Authority wants to see everything, even if the tax on most of it is zero.

This creates real compliance costs. You need an Israeli accountant to prepare an Israeli return. You need to gather documentation on foreign assets that you may never have had to disclose before. And the penalties for failing to report are not trivial. And you want that Israeli accountant to work hand in hand with a really knowledgeable US accountant. That is where I come in and can help. I work hand in hand with the top Israeli tax offices in the country.

The practical takeaway is that the new regime makes your Israeli tax bill much lower but does not make your Israeli filing simpler. If anything, the combination of “exempt from tax but required to report” creates more paperwork, not less, because you need to document and justify every exemption you are claiming.

What This Means

The new regime is genuinely transformative for earned income during the first five years. I am not walking back anything I have written about it. But the excitement has pulled some people toward a mental model where Aliyah suddenly means no tax planning need be done. This couldn't be further from the truth.

What happened is that one specific category of taxes got dramatically reduced. The filing obligations, the reporting requirements, the state tax traps, and the year-one timing challenges are all still there. Some of them are actually harder now than they were before the new laws, because the strategies that worked under the old regime do not work the same way anymore.

If anything, the new regime makes planning more important, not less. The clients who try to simplify their approach based on “the new law fixes everything” are the ones who will run into the biggest problems.

If you need help with your plan, reach out. I help people live their dream of coming to Israel and pay the least amount in taxes possible.