As a rule, American citizens pay taxes on worldwide income. Non-citizens or U.S. residents are required to pay on income that comes from the United States.
Therefore, an American citizen who immigrated to Israel or resides in Israel is subject to Israeli tax laws and American tax laws. In this case, he/she is required to submit tax returns and pay taxes to the U.S. authorities in accordance with the U.S.-Israel Tax Convention.
The U.S.-Israel Tax Convention to Prevent Double Taxation
According to the Convention, the U.S. is entitled to collect taxes on income of American citizens who live in Israel. On principle, a resident of the State of Israel who has American citizenship/Green Card, must first pay taxes to the Israeli tax authorities (Israel has precedence) and receive a tax return from the United States. However, if Israeli tax rates are higher than American tax rates, the Israeli taxes may cancel the American taxes.
Besides American tax returns, it is possible to take advantage of a foreign exclusion for active income in the amount of $93,000 per year (as opposed to passive income).
For an American who immigrated to Israel (including an Israeli who has returned and possesses a Green Card) and receives Immigrant Benefits in Israel, it is advised to get professional tax advice about whether these benefits require an IRS tax payment.
FBAR – Foreign Bank Accounts Reporting Report
American citizens who own foreign accounts are required to submit an FBAR report. In this report, American citizens report on financial accounts outside U.S. borders including Form 1040 (annual tax report) and, under certain circumstances, Form 8938.