Is there a US-Israel social security totalization agreement?

A software developer from Chicago moves to Tel Aviv, keeps her US clients, and registers as self-employed (osek patur) in Israel. She now pays US self-employment tax at 15.3% and Israeli National Insurance and health contributions on the very same profit, because nothing stops the overlap. The United States and Israel have never signed a social security totalization agreement. There is a US-Israel income tax treaty, but it covers income tax, not social security, so the double charge on self-employment earnings has no treaty fix.

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Detailed Explanation

A totalization agreement is a bilateral treaty that coordinates two national social security systems. It assigns each worker to one system, so the same earnings are not taxed for social security in both countries at once. It also lets a worker add together, or totalize, credits earned in each country to qualify for a benefit that neither record alone would support. The United States has roughly thirty such agreements, with Canada, the United Kingdom, Germany, and others. Israel is not among them.

For a self-employed American in Israel, the missing treaty has a direct financial result. US law subjects a citizen's worldwide self-employment profit to US self-employment tax at 15.3%, which funds Social Security and Medicare. Israel, at the same time, charges National Insurance (Bituach Leumi) and health contributions on the same profit. Neither country steps aside. The independent contractor funds two retirement and health systems from one income stream.

People often assume the income tax treaty solves this. It does not. The US-Israel income tax treaty reduces double taxation of income through credits and sourcing rules, and you can read the detail in our guide to the US-Israel tax treaty. Social security taxes sit outside its scope. Self-employment tax is not income tax for treaty purposes, so its relief provisions never reach them.

A second common assumption also fails. The foreign earned income exclusion lets a qualifying American exclude a large amount of foreign earnings from US income tax. It has no effect on US self-employment tax. You can exclude every dollar of Israeli income from income tax and still owe the full 15.3% self-employment tax on your profit.

None of this stops you from collecting a US benefit you have already earned. A US citizen who accumulated the required forty quarters of Social Security credits can receive US retirement benefits while living in Israel. The missing agreement concerns contributions and the combining of credits, not the payment of a benefit already earned.

The inability to combine credits is the quieter cost. Without an agreement, US and Israeli contribution periods stay separate rather than being pooled. A worker can fall short of qualifying in both systems even though a combined working life would comfortably have met either threshold.

Employees feel the gap differently. An American employed by an Israeli company usually has Bituach Leumi deducted at source and may not owe US self-employment tax on that wage. Yet there is no exemption certificate to formally lift one country's charge, which is exactly what a totalization agreement would provide.

In Practice: Under the National Insurance Law [Consolidated Version] 1995, the National Insurance Institute (Bituach Leumi) collects self-employed contributions at progressive rates, roughly 6% in the lower income band and rising toward 18% above it once National Insurance and health tax are combined. A self-employed American earning NIS 400,000 in a year can pay these contributions and, on top of them, US self-employment tax at 15.3% on the same profit, because no totalization agreement removes either charge. Such workers must register with Bituach Leumi within 90 days of starting activity and pay monthly, while the US self-employment tax falls due with the annual Form 1040 filing each April.

Key Considerations

• If you are self-employed keeping US clients while living in Israel, budget for both systems from the outset; the combined social security cost can reach a large share of net profit before income tax.
• The form of your Israeli registration matters. An osek patur or osek murshe self-employed status triggers Bituach Leumi on profit, while forming an Israeli company and drawing a salary changes how contributions and US self-employment tax apply.
• Keep clean records of what you pay into each system; if you later claim benefits, or if an agreement is ever signed, documented contribution histories will matter.
• Ask whether operating through a US corporation or an Israeli company reduces the base on which self-employment tax is charged; the answer turns on your facts.
• Remember that an already-earned US Social Security pension keeps paying while you live in Israel, separate from the contribution overlap.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• You are self-employed with both US and Israeli clients and want to structure your work to reduce paying full social security into both systems at once.
• You are near retirement with split US and Israeli contribution histories and need to know what each system will pay, given that credits cannot be combined.
• You are shifting from employee to self-employed status in Israel, or incorporating, and the change alters your exposure to both Bituach Leumi and US self-employment tax.

A qualified Israeli attorney working with your US tax adviser should review your specific circumstances before you register as self-employed or restructure how your Israeli work is billed.

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Speak With an Israeli Attorney

The double social security charge on self-employment income is one of the few cross-border costs with no treaty remedy, so planning happens through how your work is structured, not through relief claimed afterward. Getting that structure right before you register in Israel protects your income.

Contact us for a confidential initial consultation.