Americans who move to Israel and continue working for an American company: Do they have to file yearly two tax returns, and pay income taxes to both Israel and America?

Americans who move to Israel and continue working for an American company: Do they have to file yearly two tax returns, and pay income taxes to both Israel and America?

Americans who move to Israel and keep their American W-2 job are required to file an Israeli tax return on the foreign income, and pay income taxes to Israel, if necessary. The foreign tax credit or foreign income exclusion can take off any US income taxes. 

However, if the person is paid as an independent contractor, such as on a 1099, they would have to pay US self employment tax, as well as Israeli self employment tax, since the tax treaty doesn't help for double taxation of self employed individuals. 

This is very common when people move to Israel - US employers prefer this arrangement since it saves them on taxes. They can get away with easier it if the worker is overseas. But it's worse for the employee.

The employee may need to set up an Israeli company as well. Income tax will still be paid to Israel and the foreign tax credit or foreign income exclusion can take off the US income tax, which is a different type of tax than the self employment taxes. 

If you have children under 17, the child tax credit may cancel out part or most of your self employment tax, depending on your income and amount of children.