Employed and Self-Employed at the Same Time

More and more Israelis are both salaried employees and self-employed simultaneously — holding a job while running a business on the side, or combining several income sources. This is entirely legitimate and increasingly common, but it demands attention in two areas: income tax and National Insurance (Bituach Leumi). Handled properly, it avoids overpaying on one side and accumulating a surprise debt on the other.

Disclosure: Educational information only. This is not tax advice. Verify with the Tax Authority, Bituach Leumi or an adviser. Any action you take is your own responsibility.

Who counts as employed and self-employed

Someone wearing two hats at once: income as an employee, with a payslip and an employer withholding tax at source, and income as a self-employed person from a business in their own name. Both income sources are counted together for income tax and National Insurance purposes — and that is precisely where attention is required.

The first challenge: tax coordination

This is the biggest single risk. Without tax coordination (teum mas), each income source is treated as though it were your only one, and each payer withholds tax using the lowest brackets. The result is predictable: at the end of the year you discover that not enough tax was paid, and you receive a demand for the balance.

The fix is to arrange tax coordination between your income sources so tax is calculated correctly on your total income. It is a free service from the Tax Authority. See the taxes section for detail.

The second challenge: National Insurance

Income accumulates for Bituach Leumi as well. An employee pays National Insurance through the payslip; a self-employed person pays separate advance payments. It is important to update Bituach Leumi with your realistic total income — reporting too low accumulates a debt, reporting too high means overpaying. The figure you report also affects your entitlements, including maternity benefit and disability cover, so understating income has consequences beyond the balance owed.

Reporting and income tax

Someone who is both employed and self-employed is generally required to file an annual return that consolidates both income sources and settles the account. The good news: exactly like any self-employed person, you can deduct recognized business expenses and make pension and study fund contributions with tax relief, all of which reduce the total tax. See the full self-employed guide.

The advantages of combining

The combination brings real benefits: security, in the form of a steady salary alongside a growing business; flexibility, since you can test the business without giving up stable income; and tax advantages, through expense deductions and tax-relieved contributions on the self-employed income. Many people use exactly this route on the way to full self-employment.

Common mistakes

1. Not arranging tax coordination — the single most common cause of a year-end tax debt.

2. Not updating Bituach Leumi — leading to either debt or overpayment.

3. Not claiming expense deductions against the self-employed income.

4. Assuming the employer handles everything — they handle only the salaried portion.

Summary

Combining employment and self-employment is a sensible arrangement, but it requires two things: tax coordination, so you are not under-withheld and hit with a demand, and updating Bituach Leumi, so no debt accumulates. Get both right and you genuinely have the best of both worlds.

See the full self-employed guide and the taxes section on coordination and refunds. We provide the knowledge — the decisions remain yours.