Israeli Pension Contributions and US Social Security: Treaty Considerations

Why this matters

Most American Olim worked in the US before aliyah. Many continue working remotely for US employers after moving. The US Social Security system and the Israeli Bituach Leumi system both have their own contribution and benefit rules. Without coordination, you could pay social tax twice on the same income, or fail to qualify for either pension. The US-Israel Totalization Agreement is the legal framework that solves this.

What the Totalization Agreement does

The US-Israel Totalization Agreement on Social Security was signed in 2025 and is effective from 2026. It does two main things.

1. Prevents double social insurance contributions

A US-citizen Oleh working remotely for a US employer is, in principle, subject to:

- US FICA (Social Security + Medicare) on US wages

- Israeli Bituach Leumi on resident worldwide income

Both could withhold from the same paycheck. The Totalization Agreement says you pay only the system where you are actually working (Israel in this case) and the other system honors the agreement.

For W-2 employees: the US employer adjusts payroll to stop FICA withholding upon receiving documentation.

For 1099 contractors and self-employed: you must request a Certificate of Coverage from Bituach Leumi and submit it to the IRS.

2. Lets contribution years from one country count toward eligibility in the other

US Social Security retirement requires 40 quarters of credited work (about 10 years).

Israeli Bituach Leumi old-age pension requires at least 60 months (5 years) in the last 10, or 144 months total.

If you have, say, 7 years of US contributions and 6 years of Israeli contributions:

- For US Social Security: 28 US quarters + Israeli totalized years can reach the 40 minimum.

- For Israeli pension: combined years can satisfy the residency minimum.

Each country still pays its own pro-rata benefit based on the years actually contributed in that system.

How benefits are calculated

US Social Security pro-rata calculation

If you have less than 40 US quarters but enough combined years to qualify under Totalization:

1. SSA calculates your benefit as if all your earnings were US.

2. SSA prorates: benefit x (US quarters / total quarters used to qualify).

3. The Israeli Bituach Leumi pays its own benefit based on Israeli years.

Example: 7 US years + 18 Israeli years = 25 total. US calculates a full benefit of USD 2,000 per month, then prorates: USD 2,000 x (7/25) = USD 560 per month from US Social Security. Israeli pension pays based on the 18 Israeli years.

Israeli Bituach Leumi pro-rata calculation

If you have less than 60 months in the last 10 years (or 144 lifetime) but qualify under Totalization:

1. Bituach Leumi calculates the benefit as if you had enough Israeli years.

2. Prorates by Israeli years vs total years used to qualify.

Example: 7 Israeli years + 25 US years used to qualify (32 total). Bituach Leumi pays the Israeli pension x (7/32) of the full amount.

Who benefits most from the agreement

Olim who worked in the US for 5 to 9 years before aliyah

Without the agreement: would not qualify for US Social Security retirement (need 10 years).

With the agreement: can use Israeli years to reach eligibility, get pro-rata US benefit.

US-citizen Olim who continue remote work for US employers

Without the agreement: would pay US FICA (7.65 percent employee + 7.65 percent employer, or 15.3 percent self-employed) plus Israeli Bituach Leumi on the same income.

With the agreement: pay only Bituach Leumi.

Olim returning to the US after years in Israel

Without the agreement: Israeli years would not count for US Social Security.

With the agreement: Israeli years count toward US eligibility.

Who does not benefit as much

Olim who never worked in the US

The agreement helps coordinate, but if you have no US contribution history at all, you cannot draw US Social Security regardless of the agreement.

Olim with 10+ years in each country

Both systems pay their full earned benefits without prorating. The agreement is helpful only for tax withholding coordination.

What you need to do

1. Document your US and Israeli work history

Pull a Social Security Statement from ssa.gov and an Israeli contribution history from btl.gov.il. Keep both.

2. For ongoing US employment, request a Certificate of Coverage

Apply at Bituach Leumi under the Totalization Agreement provisions. Bituach Leumi issues a certificate confirming you pay Israeli social insurance on your foreign income. Provide to your US employer (W-2) or attach to your US 1040 (1099).

3. At retirement, file in both countries

You apply for US Social Security through the SSA (online or at a US Embassy abroad service). You apply for Israeli pension at Bituach Leumi. Each application may reference the other if needed.

4. Coordinate timing

Some Olim find it tax-efficient to start US Social Security at a different age than Israeli pension. The US allows benefits at 62 (reduced), full retirement at 67, or delayed until 70 (increased). Israeli pension begins at 67 (men) or 65 to 67 (women).

Tax on the benefits

US Social Security received in Israel

- US side: depends on total income, up to 85 percent of the benefit can be taxable.

- Israeli side: under the US-Israel tax treaty, US Social Security received by an Israeli resident is generally taxed only in the US. Some interpretations allow Israeli tax but with credit for US tax paid.

Israeli Bituach Leumi pension received in Israel

- Taxable in Israel at ordinary marginal rates above the basic deduction.

- For US citizens, also reportable on US 1040 but typically offset by Foreign Tax Credit.

Common mistakes Olim make

Not requesting a Certificate of Coverage. Default is double taxation. Always file for the certificate.

Assuming the Totalization Agreement applies automatically. It requires the certificate plus correct filing on both sides.

Underestimating Israeli pension contributions. The Israeli Keren Pensia (private pension) is separate from Bituach Leumi old-age pension. You need both to maximize retirement income.

Letting US Social Security records lag. Pull your statement every 2 to 3 years. Errors in your contribution record can be corrected only within statute of limitations.

Forgetting Medicare. US Medicare eligibility is separate. Olim who lose access to Medicare because they live abroad face a coverage gap. Some Olim maintain US Medicare Part A (no premium) just in case.

Medicare and Olim

Quick notes on US Medicare for Olim:

- Medicare Part A (hospital insurance) requires no monthly premium if you qualify based on work history. You can keep it even living abroad, but it does not cover care provided in Israel.

- Medicare Part B (medical) requires monthly premium (USD 175+ in 2026). Pausing Part B while abroad and restarting later usually triggers a permanent premium surcharge.

- Israeli health care plus Medicare Part A is the most common Olim setup.

What to do this year

1. Pull your US Social Security Statement (ssa.gov/myaccount).

2. Pull your Israeli Bituach Leumi statement (btl.gov.il/en).

3. If working remotely for a US employer, request a Certificate of Coverage from Bituach Leumi.

4. Confirm with your US employer that FICA withholding can be stopped under the agreement.

5. File US Form 1040 with the Certificate of Coverage attached if self-employed.

6. Set a reminder at age 60 to plan US Social Security claim strategy and at age 65 to handle Medicare decisions.

KolShekel does not provide US tax advice or Social Security advice. The Totalization Agreement is new (effective 2026) and implementation rules are still being clarified. Consult a cross-border CPA and consider a free SSA appointment at the US Embassy in Jerusalem before making claim decisions.