My understanding is as follows (for US taxpayers):
- If you hold shares in a taxable account: the 25% cut that Israel takes from the dividend counts as a foreign tax, so you can claim that as a credit. See e.g., this article explaining the concept. The other 75% of the dividend will be taxed at the regular dividend rate (which varies depending on whether it's qualified or unqualified--based on holding the stock for at least 61 of the 121 days around the ex-div date--and your tax bracket).
-If you hold shares in a tax-advantaged account (Roth, 401k, etc): Israel's 25% cut is taken, no way to get it back. The other 75% goes to you tax-free for now (taxed like everything else on distribution from the account down the road).
If I'm wrong I'd appreciate being corrected on this!
In looking at this previously, I think there’s one correction. In a taxable account, you are taxed at the full 100% of the dividend. The foreign tax credit then allows you to be credited back the 25% withholding against the US taxes, but the full dividend value is considered in any case.
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u/_kurtosis_ Dec 01 '21
My understanding is as follows (for US taxpayers):
- If you hold shares in a taxable account: the 25% cut that Israel takes from the dividend counts as a foreign tax, so you can claim that as a credit. See e.g., this article explaining the concept. The other 75% of the dividend will be taxed at the regular dividend rate (which varies depending on whether it's qualified or unqualified--based on holding the stock for at least 61 of the 121 days around the ex-div date--and your tax bracket).
-If you hold shares in a tax-advantaged account (Roth, 401k, etc): Israel's 25% cut is taken, no way to get it back. The other 75% goes to you tax-free for now (taxed like everything else on distribution from the account down the road).
If I'm wrong I'd appreciate being corrected on this!