Why U.S. Citizens in Israel Should (Almost Always) Sell RSUs at Vesting:

Why U.S. Citizens in Israel Should (Almost Always) Sell RSUs at Vesting:

If you're a U.S. citizen working in Israel and receiving RSUs from your employer, you've likely heard the advice: "sell at vesting". This is the most effective way to avoid unnecessary taxation and simplify reporting.

Here’s why it matters.

The U.S. taxes RSUs as ordinary income on the day they vest, based on their fair market value. Israel, however, doesn’t tax RSUs at vesting. Instead, it taxes them when you sell, and often assumes you received the shares for free, assigning a ₪0 cost basis unless you prove otherwise.

This disconnect creates a cross-border mismatch. You’ve already paid U.S. tax on the full value at vesting, but Israel may later tax the full sale proceeds again, without recognizing your cost basis or your prior U.S. tax. It’s not technically “double taxation,” but the result can be the same: excess tax and no foreign tax credit.

Selling your RSUs immediately at vesting solves this.

When you sell at vesting, both the U.S. and Israel treat the income in the same year as ordinary income. This creates a clean tax match and enables you to claim a full foreign tax credit. You avoid mismatches and messy cost basis disputes later on.

Importantly, Israeli tax law generally treats RSU shares sold within 2–3 years of vesting as ordinary income. That aligns well with U.S. tax treatment and helps ensure full credit and compliance if sold during the calendar year of vesting.

If you believe strongly in your company’s future, you can always sell at vesting, pay your taxes cleanly, and repurchase the stock with after-tax funds. That gives you a fresh Israeli cost basis and avoids complications down the line.

One exception: if you work for a private company or startup where the stock isn’t publicly traded, holding vested RSUs may be reasonable. If you truly believe in the company’s upside, and you’re comfortable with the added tax exposure, it can be a calculated risk. Just make sure you understand the trade-offs, and keep good records.

Bottom line: RSUs are compensation, not an investment strategy. For most U.S. citizens in Israel, selling at vesting is the smartest, cleanest approach.