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The Israeli Tax System explained – salaried worker

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legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

The following is an updated version of the previous post explaining the tax system for a salaried worker.  Hopefully every year or two, I try to look back and update similar articles to ensure that their information is up to date.

The following article will explain the Israeli tax system for a salaried worker and how to calculate your נטו (net pay) from your ברוטו (gross pay).

Let’s begin with a base salary.  In the following article, Bob, a worker at The Rubber Duck Factory earns ₪5000 as his base salary.

Next we need to deduct taxes.  When calculating taxes, there are some items that are automatically tax deductible and other benefits that are taxed.  For example, the money you pay into your pension is tax deductible.  In our example, Bob pays in 5% (5000 x 5% = 250) of his base salary into his pension.

Now let’s add the extra things that are taxed, for example, the basic transportation expense to get to work that is reimbursed. Bob is reimbursed for ₪350 of his transportation to work.  This means that the taxable amount will now be ₪5,000 – ₪250 + ₪350 = ₪5,100.

Now we can calculate Bob’s taxes.  Israel has a progressive system, so Bob will pay 10% for the first ₪ 5070 and 15% of the remaining amount.

Monthly Income

Tax rate

up to ₪5,070

10 %

from ₪5,071 to ₪8,660

14 %

from ₪8,661 to ₪14,070

23 %

from ₪14,071 to ₪21,240

30 %

from ₪21,24, to ₪40,230

33 %

from each additional shekel

45 %

In this case my taxes would be 10% (₪5,070) + 15% (₪30) = ₪511.20

But wait!  There are tax points that we all get.  The value of the tax points changes every year.  In 2011, each point entitles us to save ₪209 a month on our taxes:

Every man begins with 2.25 points (2.75 for woman).  Then there are additional points for serving in the army, having completed a degree, and having children. Click here for a translation of the tax authority’s page of all the additional points. Let’s leave it simple in our case, no extra points.  Bob gets 2.25 points equal to ₪470.25.  This means that his total taxes are ₪511.20 – ₪470.25 = ₪40.95

Note:  there are other issues that affect you taxes, such as additional taxed items, additional tax deductible items and you average salary over the past several years.  This is a very simplified example.

3)  Now we have to take off for insurance.  Warning: the calculations are a bit crazy, so bear with me.

When calculating your insurance tax, you need to calculate your base pay and add all the extra things you pay for.  But while you pay extra taxes for all your benefits, none of you deductibles come into play (I know, it’s not fair.  I could rant for hours about ביטוח לאומי, but this is not the place…)  In our case, Bob will be paying insurance taxes on his base pay of ₪5,000 plus the additional ₪350 given to him for transportation.

The next thing we have to do is calculate 60% of the average salary.  According to ביטוח לאומי the average salary for 2011 pay checks is ₪8,307, so 60% of the average salary is ₪4984.20.

For the portion of you salary equal to 60% of the average salary, you pay:

National insurance (disability, unemployment etc.): 0.40% & Health insurance: 3.10%

From the rest of the money you make:

National insurance: 7.00% & Health insurance: 5.00%

So for National insurance: 0.40%(₪4984.20) + 7.0%(₪5350-₪4984.20) = ₪45.54.  And for Health insurance: 3.1%(₪4984.20) + 5.0%(₪5350-₪4984.20) = ₪172.80 The total amount Bob will pay for insurance is ₪218.34

Now Bob can deduct his investments from his gross pay.  In our example, Bob pays 5% into his pension and has no other investments that he pays into.  So we deduct 5% x ₪5,000 = ₪250 from his salary.

Let’s see what we have left:

₪5000 + ₪350 (transportation) – ₪40.95 (taxes) – ₪218.34 (insurance) – ₪250 (investments) = ₪4,840.71

Just to give you an idea of how much you need to make in order to bring home what you want, I made the following table.  The table represents a working man (not oleh chadash, no other points) and how much he would take home from his salary based on the conditions and benefits outlined above

Salary → Brings Home

  • ₪6,000 → ₪5,537.71
  • ₪8,000 → ₪6,931.71
  • ₪10,000 → ₪8212.61
  • ₪12,000 → ₪9441.61

To summarize, taxes stink, ביטוח לאומי stinks even more, and you’re not making as much as you think you do.  The most important thing though is to take the proactive step and realize how much you make when budgeting.  While the גמרא teaches us that a person’s salary is ordained by heaven, how he or she spends it is his or her own choice.

If you want to plug in your own salary, you can download the Israel Tax Calculator here.


8 Comments

  1. NG says:

    This is far and away the best explanation of the taxes here that I’ve seen in five years as an Oleh. Nefesh b’Nefesh should print this out and distribute it to new Olim at the airport.

  2. Mike Miller says:

    Excellent article. Thanks!

  3. Jo Guy says:

    Tosafot on Masechet Shabbos says that when a government (non-Messianic) forms in Israel, it is the only place where “dina d’malchuta dina” by money (following the land’s laws) does NOT apply.

    Therefore, do the smart thing and get paid via Paypal or in other countries to avoid the Israeli system 🙂

  4. Derek says:

    wait the employers pay for your transportaion? so i don’t have to buy an $89 unlimited metrocard? (New Yorker)

    • jonnydegani says:

      By law an employer has to pay for your transportation to work. They can choose to pay you based on your receipts or based on the price of an unlimited bus pass from your house to the working place. This is considered a benefit and is therefore taxed for income tax and insurance purposes.
      Additionally, when you travel extra for work, it is considered a work expense that is not taxable.
      For example, I work for an organization in Petah Tikvah. Also, once in a while I am asked to go to our the Jerusalem office for finance meetings. The transportation from my house to the office in Petah Tikvah is a steady payment that I always recieve and is taxable. On the other hand, my transportation to Jerusalem is only occasional, and is reinbursed without any taxes taken out.

  5. NG says:

    Derek, that’s one way of looking at it. Another way is just to figure that anything employers pay to the government or to their employees just comes out of the employees’ salaries.

  6. YADE DAYAN says:

    if i received havraha how much taX MYEMPLOYER NEED TO DEDUCT

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