You probably have heard by now, dual US-Israeli citizenship can bring a lot of tax headaches to the table. For “mixed couples” – where one spouse is a US citizen while the other isn’t – it can be even more complicated. The goal of this guide to present some of the important aspects of financial planning that “mixed-couples” should take in to account when building their financial life together.

This article is meant to serve as an educational tool to guide your research and help you prepare for a meeting with a financial professional. Nothing here should be viewed as personal advice. For high net worth individuals, professional guidance on these matters is especially important.

For the sake of this article, I would like to introduce you to our fictional couple Noam and Tamar who just got married – Mazel tov! Noam was born in London before making Aliyah as a child and is not a US citizen. Tamar just made Aliyah from Texas and is a dual US-Israeli citizen.

Key concepts

To get started, you really need to have a basic understanding of some of the important tax concepts imposed by Uncle Sam. Here are some brief highlights:

US taxation of non-residents

While most countries tax only people living within their borders, the US taxes its citizen, regardless of where they live. This means that as a US citizen who moves to Israel, Tamar needs to consider both the Israeli and US tax codes when building her financial plan. On the other hand, Noam’s guiding principle should be: do everything I can to avoid being trapped in the US tax net.

US gift tax

The US does impose both an inheritance & gift tax but with significant ways around them. For example, there is an unlimited spousal deduction in which one spouse can gift to another spouse, in life or death, an unlimited amount of assets without incurring any gift or estate tax. Unfortunately, this is only the case if both spouses are US citizens.

For mixed couples, Tamar can gift up to $185,000 (in 2024, indexed for inflation) per year to Noam without incurring gift tax. If Tamar gifts more than that to Noam, it would require using her lifetime exemption (currently 13.61 million) and filing a gift tax return. In all the examples mentioned below, if Tamar would be transferring more than that annual limit (185K) to a joint account or an account/investment in Noam’s name, a US accountant should be consulted.

Non- Americans investing in US based assets

Just because Noam isn’t American doesn’t mean he can’t get caught up in the US tax net. For example, if Noam, as a non-American, owns US assets (such as US stocks, US ETFs, US based real estate etc.) he can be subject to an estate tax of up to 40%!! on the entire value above $60K. Noam therefore likely wants to avoid holding US domiciled assets.

The best investment options for Americans and non-Americans are completely different and Tamar & Noam need to plan accordingly.

Tips for managing your joint financial life

Once you have an understanding of the basics, let’s dive in to some of the practical issues that arise for mixed couples.

Joint bank accounts

One of the first questions that come up for a mixed couple, is whether or not they should open up a joint bank account. Having a joint bank account can certainly make it easier to pay all your bills and manage cash flow in one place. But having the US citizen spouse on the account means including the account in the FBAR and more limited savings options.

One common solution is to maintain two separate bank accounts, one joint and one in the name of the non-US citizen spouse only. Tamar & Noam can open a joint account to manage cash flow, pay bills, and save 1-2 months worth of expenses. Noam can open or a separate account (or keep an existing one) in his name only to be used for buying קרנות כספיות, storing the rest of the emergency fund, and managing savings for upcoming short-term goals (3 years or less away).

Bottom line: if you can eliminate or reduce you bank fees, consider maintaining 2 bank accounts.

Investment accounts

A key rule of thumb to remember: mixed couples should not open joint investment accounts. As mentioned above, the best investment options are completely different for Americans & non-Americans. The two main options are to open a single investment account in only one of the spouses names or to open a separate account for each spouse.

If choosing to open only one account, more often than not, it is a better idea to open the account in the non-American’s name, but there are many exceptions to this rule. For example, if most of Noam and Tamar’s savings are currently in Texas and Tamar has many years left on her Aliyah Tax Holiday, it probably would be a better idea to open up the investment account in Tamar’s name. For more information on the best place to open an investment account, see our full guide on this, here.

Bottom line: It is rarely advisable for a mixed couple to open a joint brokerage account. For step-by-step support on this, join our Guided Investment Program.

Filing a US tax return

Mixed couples living in Israel have to decide how they are going to file their US taxes and whether or not to include the non-American spouse in the tax return. There could be some tax advantages for Noam applying for a US ITIN (individual tax identification number) and being included together with Tamar in a “married filing jointly” US tax return. But, does Noam really want to report all his worldwide income to the IRS and subject himself to the same onerous tax provisions Tamar faces?

Bottom line: Mixed couples should get specific tax advice from a US accounts before deciding how to file their US return.

What about our kids?

For Tamar and Noam, their children will likely automatically be considered US citizens (with all of its tax consequences) at birth. This is because Tamar was born and raised in the US. In most cases, where one of the parents is a US citizen and only left the US at some point after the age of 16, the children are very likely to be considered US citizens as well. You can the read the specific rules, here.

Tamar and Noam need to keep this in mind as they save and invest for their US-citizen children. This will also likely affect their decision regarding which track to choose for each child in the חיסכון לכל ילד (this decision needs to be made within 6 months of birth).

Of course, Tamar and her children (when they turn 18) have the option of renouncing US citizenship. Stay tuned for a future article or podcast on this topic.