By Baruch Swinkin

BEIT SHEMESH, ISRAEL- With President Biden’s administration settling in and a new agenda laid out, a clearer picture has begun to emerge on the issue of taxation for US citizens living or working overseas.

Many Americans living in Israel, who pay taxes both in the United States as well as in Israel, have gotten used to successive new administrations coming into power in the United States, each one with its own agenda and with tweaks of all kinds, which they hope will help them to improve the economy and advance their agenda.

When Republicans enter the White House, it is usually focused on lowering taxes and spending; for Democratic administrations, such as the current Biden administration, higher taxes and added regulation are considered the norm.

However, with Covid-19 having become a global pandemic, and with multiple waves, lockdowns, and now new, more aggressive and contagious strains of the virus appearing, the past is not a good barometer for what the future might bring. In addition, the Trump administration’s recent stimulus checks, with significantly more on the way from the Biden administration, means that American citizens living in Israel have also gotten extra boosts of cash into their bank accounts.

These changes have left those who pay dual taxes, especially those who are self employed or work remotely, wondering: what does the Biden administration have in mind, and how will it affect issues of special importance to our community, such as social security benefits, dual taxation treaties and, in general, Americans living and working in Israel?

At Route 38 Professional Services LTD, where we advise and guide people in such situations on a daily basis, we have identified the three most important areas of changes to be aware of:

1) Increase in individual tax rates, especially for high-end earners of over $523,600 (or $628,300 for those filing jointly).

This represents another painful additional tax increase above the double taxation issues already being felt for American-Israelis earning over approximately $100,000 annually.

2) Corporate tax rate hike and savings cut. Along with raising individual tax rates, Joe Biden’s proposed tax plan will raise the corporate tax rate from 21% to 28%.

Another tax that affects expats who have a foreign business is the Global Intangible Low Tax Income (GILTI). Currently, it can be offset using tax credits and, under certain conditions, even reduced by 50% – effectively decreasing the rate to 10.5% from 21%.

The Biden tax plan will eliminate this 50% discount, essentially doubling the tax rate of American-owned foreign businesses. This will have a significant impact on those considering opening their own chevra (LTD) in Israel, which may now be subjected to a significant increase in taxes on any annual net income. 

One of the main benefits Route 38  offers our clients is the ability to bypass the hassle and headache of operating and maintaining your own company. This is done using our Employer of Record (EOR) service, something akin to a PEO.

3) The third major change between the Trump and Biden administrations is in regard to estate taxes.

The Biden administration plans to raise those rates from 40% to at least 45%, while decreasing the exemption all the way down to $3.5 million. This affects anyone getting distributions from estates or trusts who now may need to pay much higher taxes on those incomes.

This means that if Grandpa is supporting relatives living in Israel via estate planning, the tax rates paid on these monies will now make it worthwhile to rethink if and how the support is being given.

CFO of Route 38 Professional Services LTD, Baruch Swinkin has over 20 Years of experience in both public and corporate accounting. He co-founded Route 38 with the dream to assist American-Israelis working for US companies report their income painlessly in Israel, without bureaucracy, regulation, or red tape. And their secure, cloud-based platform allows US-based companies to hire and pay employees in Israel, legally and headache-free.

Considering making Aliyah or have employees working remotely from Israel? Questions?

Contact Baruch directly at [email protected]