The cost of living for a family of 4?

Marion

Wed, Jul 17 2013, 10:41 pm

Tova wrote:

Marion wrote:

I thought there was a tax treaty.

That only covers income tax, not self-employment. So - an Israeli resident who pays Israeli tax will most likely not owe US income tax on that income. However, it doesn't help with self-employment tax.

I was talking about income tax...

If a person is self-employed in the U.S. but resident in Israel I assume they would just have to pay Bituach Leumi as an unemployed resident, not as an atzmai because it's a payroll deduction but there's no payroll to process in in Israel. I believe that's a flat rate, though the information can be had on the BL website.

Tova

Wed, Jul 17 2013, 10:49 pm

Marion wrote:

Tova wrote:

Marion wrote:

I thought there was a tax treaty.

My understanding is that specifically BECAUSE there is no payroll to process (Israeli employer withholding income tax + BL) they would be considered an atzmai. They wouldn't be considered unemployed - they would have to file tax returns and pay income tax to Israel (their country of residence). I wish you were right though, so if you know any info to the contrary I'd be interested. It would certainly solve my problem! I've checked the BL website, I do think it's a flat rate with perhaps just one tier in there?

Tova

Wed, Jul 17 2013, 10:57 pm

Source for Israeli resident being taxed on worldwide income (not just Israeli sourced). Also my memory served me right about the 2 tiers of BL (as an atzmai you have to pay employer + employee portion):
http://en.wikipedia.org/wiki/T.....srael

Personal Income tax

Basis - Israeli residents are taxed on their worldwide income, while non-residents are taxed only on their Israeli sourced income.

Residence - An individual is resident if his "centre of life" is in Israel. If an individual spent 183 days or more, in Israel during the current tax year or; if an individual spent 30 days or more in Israel during the current tax year and the total days spent in Israel during the current tax year AND the preceding two years were 425 days or more.

The basic rates of income tax are as follows (according to the Israeli Tax Authority).

Current rates of national insurance for employees, including health insurance and Bituah Leumi contributions (current for 2012, in NIS)
up to 5,171 monthly salary 5,171-41,850 monthly salary
Employee’s share 3.50% 12.00%
Employer’s share 3.45% 5.90%

Tova

Wed, Jul 17 2013, 11:05 pm

If the income was actually earned in the US (ie - someone makes aliya and returns to US every few weeks/months to work there) then there are exemptions. But as far as I know, if the income is actually earned in Israel, there are no exemptions.

If anyone has any info to the contrary I'd be interested in hearing/learning.

Marion

Thu, Jul 18 2013, 6:03 am

Tova wrote:

And since the U.S. is the only country to require non-residents to even file a return, is it safe to assume that they also require non-residents to pay SS even though they don't benefit from it?

FranticFrummie

Thu, Jul 18 2013, 6:05 am

If you are self employed, how does the State of Israel know how much you are making? Is it up to the person to report honestly, or do they have some sort of tracking system? Do they monitor your bank accounts? Can they see your Paypal transactions?

I'm self employed, I ship my products internationally, and I don't run money through my bank account, it's 100% through Paypal. Planning Aliyah next year, IYH.

Thanks!

Tova

Thu, Jul 18 2013, 8:08 am

Marion wrote:

Tova wrote:

And since the U.S. is the only country to require non-residents to even file a return, is it safe to assume that they also require non-residents to pay SS even though they don't benefit from it?

Marion, from everything I have read, yes, it is required. And the US citizen WILL benefit, they will get their regular SS benefits at retirement age. I think I estimated that theoretically between 45 and 50% of my US salary would go to all these deductions - between Israeli tax brackets (marginal rate pretty high when you carry over a US income), BL employee and employer side, US employment taxes, I figured out what those would be and divided by my income to see the total percentage. I worked hard to get the Israeli tax credits right, I imagine I'm fairly close. Here in the US my income/employment tax deductions are less than 20% (doesn't include retirement/health insurance plan, etc.). I'm not saying it's not doable, I'm just saying it's something that needs to be calculated. The gross salary means almost nothing in this situation, you have to work with professionals to come up with your net salary and then you know what you are talking about.

I have also read that being an atzmai in Israel opens you up to audits, I do imagine you have to report honestly (it's like anything else, no one will know if you underreport your income by a little but if you are significantly underreporting aside from the ethical/halachic issues you are more likely to be discovered.)

FranticFrummie

Thu, Jul 18 2013, 8:17 am

RachelEve14 wrote:

Of course you have to report your income, you do in the US too if you want to be legal. How do they find out, well they do or they don't, but it's illegal to run a business without opening a tik, and if you get caught there are major fines, and it's really, really, not worth it.

Please don't think that I'm suggesting doing anything illegal! shock

I'm not like that. I file my quarterly returns.

I was just curious about how Israel works. It seems very complicated, and if too much of my profit margin is going to go away, it might be more "cost effective" to not work at all, and let DH deal with all of that. I barely make much after expenses as it is, and I doubt my customers will be happy if I have to triple my prices to cover extra taxes.

Tova

Thu, Jul 18 2013, 11:01 am

FranticFrummie wrote:

RachelEve14 wrote:

Please don't think that I'm suggesting doing anything illegal! shock

If your income less expenses is not so high (if you have substantiated business expenses they are deductible for Israeli purposes too for self-employed) you may not owe much in taxes. You may not even see much of a difference. Don't let anything I post scare you off, I'm dealing with a specific set of circumstances. Sit down with a professional - NBN may be a great starting point.