Taxes

The Israeli tax system is based on the principle of progressive taxation — the higher your income, the higher the tax rate. Understanding tax brackets, credit points, and the benefits you are entitled to can save you thousands of shekels per year. Despite its complexity, the basics are accessible to everyone.

Whether you are an employee, a freelancer, or both, it is important to know your obligations and rights with the Israel Tax Authority. These guides will help you understand the system and take advantage of every legal benefit available to you.

Income Tax and Credit Points

Income tax in Israel is calculated across six brackets, starting at 10% on the lowest income and rising to 50% on the highest. Every Israeli resident is entitled to credit points that reduce their tax liability. Men receive 2.25 points and women 2.75 points. Additional points are granted for children, academic degrees, military service, and other qualifying factors.

Form 101 is the basic document that every employee fills out when starting a job. It determines your credit points and tax bracket. Filling it out accurately is essential to prevent over- or under-deduction of tax.

Tax Coordination and Refunds

Anyone working for two or more employers must perform tax coordination with the Tax Authority. Without it, the second employer deducts tax at the maximum rate (50%), resulting in excess withholding that can be claimed back. Tax refunds can be requested up to six years retroactively, and the amounts can reach thousands of shekels.

Important Forms

The key forms to know: Form 101 (employee declaration), Form 106 (annual employer certificate of income and deductions), and Form 135 (annual individual tax return). Form 106 is the primary document you need for filing a tax refund request, and it is recommended to keep it for at least seven years.

Employee Rights

Employees in Israel enjoy a range of important tax-related rights: employer pension contributions (up to 7.5% of salary), severance contributions (8.33%), Hishtalmut fund contributions (7.5% of salary), and more. Upon termination, severance pay is tax-exempt up to a certain ceiling. Knowing these rights ensures you receive all the benefits you are entitled to.