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.

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.