Frequently Asked Questions

1. I live in Israel full-time, do still have to file an annual tax return in the United States?
2. What is the Foreign Tax Credit?
3. How do I know if I qualify for the Foreign Tax Credit?
4. What is the Child Tax Credit?
5. How do I know if I qualify for the Child Tax Credit?
6. My spouse is not an American citizen, can I still claim the Child Tax Credit?
7. I have four children, can I receive a $1000 child tax credit for each of them?
8. I don’t have any children, can I qualify for a refund?
9. How do I apply for a Social Security number for my children who were born in Israel?
10. What are the basic tax rates in the United States?
11. If I live and work in Israel full-time, do I need to pay Social Security and Medicare in America?
12. If I live and work in Israel full-time, do I need to pay Social Security and Medicare in America?
13. If I am self-employed in Israel, do I have to pay U.S. self-employment taxes?
14. I do not have a permanent address in America, do I still need to file a state tax return?
15. What records of my foreign taxes paid must I keep?

Q: I live in Israel full-time. Do still have to file an annual tax return in the United States?

A: Yes. All U.S. citizens are required to file annual tax returns regardless of where they live. Generally, you must file a return for 2005 if your gross income from worldwide sources greater than the amount shown for your filing status in the following table.

Filing Status*	Amount
Single	$ 8,200
65 or older	$ 9,450
Head of household	$10,500
65 or older	$11,750
Qualifying widow(er)	$13,200
65 or older	$14,200
Married filing jointly	$16,400
Not living with spouse at end of year	$ 3,200
One spouse 65 or older	$17,400
Both spouses 65 or older	$18,400
Married filing separately	$ 3,200

* If you are the dependent of another taxpayer, see the instructions for Form 1040 for more information on whether you must file a return.

Return to index

Q: What is the Foreign Tax Credit?

A: A credit against U.S. tax for tax due in a foreign country on foreign source income. The credit is limited to the lessor of the following two amounts:

The U.S. tax on the net foreign source earnings, or

The foreign taxes paid or accrued by the U.S. taxpayer during the year plus carryover of foreign taxes.

Return to index

Q: How do I know if I qualify for the Foreign Tax Credit?

A: Generally, the following four tests must be met for any foreign tax to qualify for the credit (The amount of the credit is calculated on IRS form 1116):

• The tax must be imposed on you
• You must have paid or accrued the tax
• The tax must be the legal and actual foreign tax liability
• The tax must be an income tax (or a tax in lieu of an income tax)

Return to index

Q: What is the Child Tax Credit?

A: A child tax credit is a tax credit of $1,000.00 per child based on the number of dependent children in a family. Please click her for more Child Tax Credit Information.

Return to index

Q: How do I know if I qualify for the Child Tax Credit?

A: A qualifying child for this credit is someone who meets the following criteria:

• Dependent Is claimed as your dependent
• Age Was under age 17 at the end of 2005
• Relationship Is your son, daughter, adopted child, grandchild, stepchild or eligible foster child, your sibling, stepsibling or their descendant
• Citizenship Is a U.S. citizen or resident alien

Please click her for more Child Tax Credit Information.

Return to index

Q: I have four children, can I receive a $1000 child tax credit for each of them?

A: If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim some or all of the difference as an “Additional” Child Tax Credit. The additional Child Tax Credit may give you a refund even if you do not owe any tax. For 2005, the total amount of the Child Tax Credit and any additional Child Tax Credit cannot exceed the maximum of $1,000 for each qualifying child.

In Addition, if you have three or more qualifying children, you may be able to claim an additional child tax credit up to the amount of Social Security taxes you paid during the year, less any earned income credit you receive.

Please click here for more Child Tax Credit Information.

Return to index

Q: My spouse is not an American citizen, can I still claim the Child Tax Credit?

A: Yes. If your spouse is not a U.S. Citizen then you must still file a U.S. tax return and you can still qualify for the Child Tax Credit. However, for tax purpose, you must consider your marital status to “Head of Household” rather than “Married, Filing Jointly.”

Return to index

Q: I don’t have any children, can I qualify for a refund?

A: Maybe. As a U.S. citizen you must file a tax return. However, as a resident and employee in Israel you will most likely not owe any taxes to the United States government. This is because the taxes you pay in Israel will count as a Foreign Tax Credit most likely reducing you U.S. tax liability to zero. Depending on what other earnings you may have outside of Israel and what other taxes you have already paid, you may be entitled to a refund.

Return to index

Q: How do I apply for a Social Security number for my children who were born in Israel?

A: If your children were born outside the U.S., you must fill out a Application for a Social Security Card and also show us proof of U.S. CITIZENSHIP or LAWFUL ALIEN STATUS.

Return to index

Q: What are the basic tax rates in the United States?

A: Please see our tax rate tables

Return to index

Q: If I live and work in Israel full-time, do I need to pay Social Security and Medicare in America?

A: U.S. Social Security and Medicare taxes do not need to be paid on wages for services performed outside the United States unless one of the following apply:

1. You are working for an American Employer.
2. You are working in one of the countries with which the U.S has a binational social Security agreemnt (Israel is not included in this category).
3. You perform the services on or in connection with an American vessel or aircraft who and either:
   • You entered into your employment contract within the United States, or
   • The vessel or aircraft touches at a U.S. port while you are employed on it.
4. You are working for a foreign affiliate of an American employer under a voluntary agreement entered into between the American employer and the U.S. Treasury Department.

Return to index



Q: What happens if I live in Israel but I take a long vacation to the United States every year?

A: This will not effect your ability to file for the Foreign Tax Credit.

Return to index



Q:If I am self-employed in Israel, do I have to pay U.S. self-employment taxes?

A: In general, the answer is Yes. If you are a self-employed U.S. citizen or resident, the rules for paying self employment tax are generally the same whether you are living in the United States or abroad. self-employment (if they are $400 or more) from

The The self-employment tax is a social security and Medicare tax on net earnings from self-employment. You must pay self-employment tax if your net earnings from self-employment are at least $400.

For 2005, the maximum amount of net earnings from self-employment that is subject to the social security portion of the tax is $90,000. All net earnings are subject to the Medicare portion of the tax.

Return to index

Q: I do not have a permanent address in America, do I still need to file a state tax return?

A: The question of State residency and subsequently State filing requirements depend on the temporary or transitory absence from the State. Individual facts and circumstances need to be evaluated.

Return to index

Q: What records of my foreign taxes paid must I keep?

A: Generally, you should keep the following records in case you are later asked to verify the taxes shown on your Form 1116 or Form 1040. You do not have to attach these records to your Form 1040.

• A receipt for each foreign tax payment
• The foreign tax return if you claim a credit for accrued taxes
• Any payee statements (such as form 1099-DIV or form 1099-INT) showing foreign taxes reported to you.

Return to index

Disclaimer: The information on or made available through www.UnitedTaxAdvisors.com is not intended to be legal, accounting, tax, investment or other professional advice. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional advisor who understands your particular factual situation.