Shomer Shekalim

Home » no tag

Category Archives: no tag

Freelancers – How to make sure you get the right coverage from your keren pensia

Hi.  It’s been a while.

One of the most common and complicated issues I encounter is assisting freelancers (atzmaiim) in setting up the insurance in their keren pensia.  As I wrote previously regarding the insurance in a keren pensia, one can set up a keren pensia so that he or she will receive up to 75% of their salary in the case of disability and 100% for spouse, kids and dependent parent in the case of death (see this post for more details).  For a salaried worker, the salary which determines the coverage (שכר קובע) is determined by the average recent salary upon which the percentages were paid in, but for a freelancer this is very complicated.  Suppose that a freelancer makes an average of NIS 11,000, but only pays in NIS 500 a month, what kind of coverage will he or she have?

The default for all freelancers paying into a keren pensia meikifa is that whatever the person is paying in is 16% of their salary.  This means that if Joe is earing around NIS 11,000 a month, but only contributing NIS 500 a month to his pension, if he fully disabled, his salary will be calculated as NIS 500 / 16% = NIS 3,125.  He will then get only 75% of that (NIS 2,344) and will have to live with this tiny bit of money for as long as he is disabled.

There is a solution:  You can arrange to set it up so that what you are paying in is as low as 10% of your salary.  In order to do this, you usually need (1) a letter from your accountant that states what your expected annual earning will be (2) to fill out a form from the insurance company.  It is important that you communicate with the company to make sure everything is set up correctly.  As a reminder, once you have an assurance in writing from the company or your agent, they are legally responsible, so make sure to get it.

But returning to our case of Joe above, we see that Joe still does not have enough money to cover him.  In order for Joe to be covered completely, Joe must increase his monthly contributions to NIS 1,100 a month and set it up so that they are calculating is as 10% of his salary.  Remember, just depositing NIS 1,100 isn’t enough, he has to make sure they are calculating it as 10% of his salary, so that if he gets disabled he’ll get NIS 8,250 (75% of NIS 11,000) not NIS 5,156 (75% of NIS 6,875, which is 1,100 / 16%).

This gets complicated for atzmaim who only pay into their pension at the end of the year.  Usually your salary is calculated based on an average of what you’ve paid in over the past 12 months, so it you are an atzmai who pays in a lot at the end of the year, then once the year-end money goes in you will be okay, but until then, you will be underinsured.  You can either speak to the insurance company to make some kind of arrangement or else purchase a private אובדן כושר עבודה to help you bridge those first 12 months.

The important takeaways here:

  • If you are a freelancer with a קרן פנסיה מקיפה, your שכר קובע is a very important issue and you must make sure that you are contributing enough so that it is set up correctly.
  • This is the most common error I have seen with freelancers.
  • It is incumbent of the freelancer, not the agent, nor the company, to make sure this is set up correctly.
  • Always get it in writing – that is the only way you know that you’re covered. Even an e-mail is okay as long as it is from the company or agent and the coverage is stated explicitly.
  • If you are going to pay in a lot at the end of the year, then the first year is a problem. Consider a separate אובדן כושר עבודה policy to cover this period.

2016 Israeli Tax Calculator

I recently updated my tax calculator.  The latest version includes the new tax brackets and credits according to 2016.
You can download the latest calculator here or go to the following site:
https://www.box.com/s/460zksl3t4335018j5hp
The Israeli Tax Calculator allows you to check your paycheck and see that the correct taxes were deducted correctly.  If too much money is being taken out for taxes or insurance, then you should demand back your money through a tax alignment (תאום מס) or an insurance alignment (תאום ביטוח לאומי).  If you need to get money back through an alignment see this post for more details.
Note:  While the amount for insurance should match your paycheck perfectly, the amount you pay for taxes may not.  There are other factors besides the ones mentioned in this spreadsheet that can affect the amount of taxes you pay (how much you got paid over the past 6 years, how often you get paid.)
Use the guide as follows:
If you are paying less in taxes than what is calculated on the sheet:  Find out what kind of benefits you are receiving and how to continue receiving them.
If you are paying more in taxes than what is calculated on the sheet:  Odds are you need to do a tax alignment.  Speak to your HR person and fix up your tax record and then file the appropriate paperwork at מס הכנסה.
As always, if you find any flaws in these excel sheets or have any ideas for improving them, please feel free to contact me.  I’m not perfect and odds are there may be an error or two, especially at the beginning of the year.
Are there any financial tools you would like to see?  Please feel free to either leave some ideas in the comments below or e-mail me at jonnydegani@gmail.com

2015 Israeli Tax Calculator

I recently updated my tax calculator.  The latest version includes the new tax brackets and credits according to 2016.
You can download the latest calculator here or go to the following site:
https://www.box.com/s/460zksl3t4335018j5hp
The Israeli Tax Calculator allows you to check your paycheck and see that the correct taxes were deducted correctly.  If too much money is being taken out for taxes or insurance, then you should demand back your money through a tax alignment (תאום מס) or an insurance alignment (תאום ביטוח לאומי).  If you need to get money back through an alignment see this post for more details.
Note:  While the amount for insurance should match your paycheck perfectly, the amount you pay for taxes may not.  There are other factors besides the ones mentioned in this spreadsheet that can affect the amount of taxes you pay (how much you got paid over the past 6 years, how often you get paid.)
Use the guide as follows:
If you are paying less in taxes than what is calculated on the sheet:  Find out what kind of benefits you are receiving and how to continue receiving them.
If you are paying more in taxes than what is calculated on the sheet:  Odds are you need to do a tax alignment.  Speak to your HR person and fix up your tax record and then file the appropriate paperwork at מס הכנסה.
As always, if you find any flaws in these excel sheets or have any ideas for improving them, please feel free to contact me.  I’m not perfect and odds are there may be an error or two, especially at the beginning of the year.
Are there any financial tools you would like to see?  Please feel free to either leave some ideas in the comments below or e-mail me at jonnydegani@gmail.com

FATCA and US Financial Reporting

By Chaim Korn

The 2010 United States Foreign Account Tax Compliance Act, better known as FATCA, requires foreign financial institutions to report to the IRS the names of their U.S. account holders.  This will most probably begin in July 2014.

Banks and other financial institutions in most countries, including Israel, have indicated that they will comply with FATCA.

U.S. taxpayers worldwide have always been required to report their foreign accounts on their annual FBAR (FinCEN 114) report.  In addition, since 2011, similar information is reported on Form 8938 (attached to Form 1040) for higher account balances.

US Persons (US citizens and green card holders) who are required to submit an FBAR or 8938, but haven’t, can face severe fines and even criminal charges in extreme cases.

Who is required to report?

FBAR:  US Persons, who at any time during the year had more than $10,000 in all non-US financial institutions combined, must file the FBAR Report.  Financial institutions include banks, brokerage accounts, certain pension funds and “keren hishtalmut” funds.  Accounts include those owned jointly and even accounts owned by others for which you have signatory power over.  The FBAR is an annual report due June 30th with regard to accounts during the previous calendar year.  In contrast to tax returns, there are no extensions allowed for reporting the FBAR.  The FBAR must be filed electronically.

Form 8938:  US Persons living abroad who are required to file tax returns will have to add Form 8938 to their 1040 if the total account balance of all non-US financial institutions combined exceeds $200,000 at year end, or, more than  $300,000 at any time during the year..  These amounts are double for married couples filing a joint return.  Amounts are substantially lower for US residents.

Penalties:  Penalties for failure to file the FBAR or Form 8938 are severe and can, in extreme situations, even include criminal sanctions.

If the IRS considers the failure to file an FBAR as non-willful, the fine can reach as high as $10,000 for each year that the report was not filed.  The penalty for willful failure to file is the greater of $100,000 or 50% of the maximum amount held in all non-U.S. accounts during the year.  For example, if a taxpayer has $200,000 in foreign accounts for six years and does not file the FBAR form or report income earned by the account each year, the IRS could assess a $600,000 FBAR penalty.

The penalty for failure to file Form 8938 is generally $10,000 per year.

The good news, however, is that if you can show reasonable cause for failure to file the reports, then the penalties can often be abated.

What should you do if you haven’t reported in the past

There are several approaches one can take in dealing with their overdue obligation with the IRS:

  • Offshore Voluntary Disclosure Program
  • Streamline Procedure
  • Quiet Disclosure

The Offshore Voluntary Disclosure Program

Beginning in 2009, the IRS established a series of “Offshore Voluntary Disclosure Programs” to encourage taxpayers to come forward and disclose their non-U.S. accounts, pay reduced penalties, and avoid criminal prosecution. The current program requires taxpayers to file delinquent FBARs and amended income tax returns including income which was not previously declared (i.e., interest, dividend and capital profit), if any, and pay tax and penalties going back eight years. In order to be eligible for this program, a request for participation in the program must be filed before the IRS contacts the taxpayer regarding delinquent returns, and before a foreign financial institution reports to the IRS.

Taxpayers must also pay a single FBAR penalty equal to 27.5 percent of the highest aggregate balance held outside of the U.S. over the previous eight years. In addition, while the normal FBAR penalty applies only to non-U.S. financial accounts, the voluntary disclosure penalty applies to the value of any foreign assets that either produced undeclared income or were purchased with undeclared funds. For example, if the taxpayer has rental property overseas and did not declare the rental income, the value of the rental property will be included in the penalty calculation.

As the penalty under the voluntary disclosure program applies only once, rather than each year, it may significantly reduce the taxpayer’s potential FBAR penalties.

The Streamline Procedure

The Streamline process allows “low risk” taxpayers who have not lived in the US at any time since the beginning of 2009, to apply for a reduced reporting requirement which includes tax returns for the past three years and FBAR reports for the past six years. 

Low risk refers to most taxpayers who owe less than $1,500 of tax per year.  There are other criteria, as well, that must be checked before submitting reports using the Streamline procedure.

Quiet Disclosure

This method is simply filing all tax returns and FBARs that are delinquent.  The advantage to this is that for taxpayers who either owe no tax or small amounts of tax, it will probably not raise any red flags.  The downside of this approach is that it does not provide any protections that the formal voluntary disclosure program might provide, or any built-in compromise to reduced FBAR penalties.

Which Method is Best for You?

Taxpayers Should Act Quickly to Evaluate which Approach Best Suites Their Needs

FATCA will force most non-U.S. financial institutions worldwide to disclose account information on their account holders who are US citizens beginning in this summer.  These U.S. taxpayers, many of whom may not even be aware of their obligation to disclose the accounts, may be running out of time to take appropriate action before the IRS takes its own.  Remember, once your bank reports to the IRS, it will be too late to use the Voluntary Disclosure or Streamline reporting options.  The quiet approach, as well, will likely be more risky.

Time is running out.  If you haven’t been compliant in your reporting to the US, the best course of action in order to avoid potentially heavy fines from the IRS is to begin reporting immediately. Your tax professional can help you decide the best approach to take, but the most important piece of advice is to NOT procrastinate.

Chaim Korn is a Certified Public Accountant from New York with over 30 years experience.  His offices are located in Ra’anana and Ginot Shomron and can be contacted at: chaim@tax-usa.co.il   www.tax-usa.co.il

2014 Israeli Tax Calculator

I recently updated my tax calculator.  The latest version includes the new tax brackets and credits according to 2014.

You can download the latest calculator here or go to the following site:

https://www.box.com/s/460zksl3t4335018j5hp

The Israeli Tax Calculator allows you to check your paycheck and see that the correct taxes were deducted correctly.  If too much money is being taken out for taxes or insurance, then you should demand back your money through a tax alignment (תאום מס) or an insurance alignment (תאום ביטוח לאומי).  If you need to get money back through an alignment see this post for more details.

Note:  While the amount for insurance should match your paycheck perfectly, the amount you pay for taxes may not.  There are other factors besides the ones mentioned in this spreadsheet that can affect the amount of taxes you pay (how much you got paid over the past 6 years, how often you get paid.)

Use the guide as follows:

If you are paying less in taxes than what is calculated on the sheet:  Find out what kind of benefits you are receiving and how to continue receiving them.

If you are paying more in taxes than what is calculated on the sheet:  Odds are you need to do a tax alignment.  Speak to your HR person and fix up your tax record and then file the appropriate paperwork at מס הכנסה.

As always, if you find any flaws in these excel sheets or have any ideas for improving them, please feel free to contact me.

Are there any financial tools you would like to see?  Please feel free to either leave some ideas in the comments below or e-mail me at jonnydegani@gmail.com

Using InfoMed to compare prices on insurance

As an American Jew, I have an aversion to paying retail; as an Israeli, my biggest fear is being a friar.  So I was particularly thrilled when I found infomed’s insurance price comparison tool.  One of the most common questions people ask when buying insurance is “how do I know I am getting a good deal?”  This tool allows you to compare various prices for insurance plans, listed according to the breakdown I offered in my last 2 posts about seudi insurance and the different kinds of health insurance in Israel.

The site is pretty close to perfect.  It obviously doesn’t include any extra you’d pay for a preexisting condition, nor does it update according to the CPI every month, but it’s a great reference to use before you buy insurance.  Unfortunately, this site is only in Hebrew, so if you don’t speak the language very well, you may need to knock on your neighbor’s door for some assistance.

Remember, you won’t get a discount unless you ask for it.  So next time your insurance agent shoots out a number, take a minute to find out what the retail price is and insist on paying less.

Speaking of which, if anyone needs health or seudi insurance, please feel free to contact me at jonnydegani@gmail.com for a quote.  I am not an agent (yet) but my boss works with just about everyone and gives a discount to whoever I send his way.

the different kinds of health insurance in Israel

The first time I was offered to buy health insurance in Israel, I pushed it aside.  Isn’t everyone covered for everything here?  Well, kind of, but not exactly.  This post seeks to explain the different levels of insurance in the country and what kind of coverage each layer provides.

Level One: Bituach Leumi (through your Kupat Cholim):  Thank God, Israel is a first rate western country that provides an extraordinary level of medical care for all of its citizens.  If an emergency comes up, you can go to the hospital and pay nothing.  When you need to see a doctor, you can just sign up online and the cost is very small co-pay.  Most medicines are subsidized, as are surgeries and other treatments.  But there are still some things that aren’t covered.  Instead, they are covered by the next two layers:

Level Two:  Additional Health Insurance through Kuppat Cholim:  If you have something like Magen Zahav of Meuhedet Adif, you have what is called shaban (שב”ן – שירותי בריאות נוספים).  Shaban covers you for additional medicines that affect quality of life (ie treating a kidney stones in a way that hurts much less).  Shaban cannot offer any additional protection for anything that can save your life.  For that, you’ll have to turn to…

Level Three: Private Health Insurance:  Almost all the insurance companies in Israel (not kuppot cholim) offer private health insurance.  There are usually three levels:  The lowest level of this insurance covers you for a certain amount towards transplants and surgeries abroad in the case of emergency.  The next level offers a slightly higher level that covers a wider range of emergencies not covered by kupat cholim, as well as certain quality of life treatments as well.  This level is usually called something like mashlim shaban – since it complements (להשלים) the insurance offered by the shaban – where the shaban pays for a part, the private insurance picks up the rest of the tab.  The highest level covers a large plethora of emergencies and illnesses and pays you irrespective of whatever is covered by kupat cholim and the shaban (in fact, sometimes it will pay you extra for having gone through something, even if the shaban paid for it as well).  Just to be clear, while almost all insurance company have the three kinds of programs above laid out above, there are variations; some cover more of X, some exclude Y, but the structure still holds.

In addition to the basic insurance laid out above, there are several kinds of “riders” or mini-policies which you can stick on your medical policy.  Below is an outline of the five most common types and which ones I think are worthwhile:

1)      Ambulatory – this covers preventative medicine, including check-ups, CTs and MRI.  Of all the riders, I consider this to be the most worthwhile.  It does cost a bit more, it does not cost nearly as much as…

2)      Alternative medicines – if you’re a naturalist or hippy, go for it.  If not, you can skip it.  Of all the riders, this is usually one of the most expensive (because the client will probably use it for every sickness).

3)      Personal doctor – this means that if you are suffering an illness, you have a personal case file and a doctor from the insurance company who monitors the progress so you know where you stand day or night.  Some people consider this worthwhile, while others do not.  It is a fairly inexpensive rider.

4)      Expedited medicine – this rider is a hypochondriac’s dream.  In the event of something wrong, you get to go to some facility or specific hospital where a team headed by someone like House MD finds what’s wrong with you and gets back to you within a few days.  This rider isn’t so expensive, but most people opt to skip it.

5)      A lump sum in case of contracting a specific kind of sickness (ie NIS 100,000 in case of cancer).  The cost depends on how much you want the sum to be.  When opting for this, and I recommend you do, opt for a sum that will allow you to get yourself and your family in order as the chaos of a sickness begins.  For example, NIS 100,000 is a good amount for making sure that you are covered until disability insurance kicks in and for your family to adjust as you go through a crisis.  To be clear, this money will not cover the cost of treatments abroad, as they usually cost much more than what is provided by these policies; you need to make sure the insurance covers the medical need and that this ride only covers the transition period for you and your family.  If you’re wondering, this is a kind of teunot ishiyot – personal injury – insurance.  In fact, the reason I am very critical of personal injury insurance generally (see last post) is that I think it should be bought in a policy like this rather than as a standalone.  Buying it with this puts it in the specific context which helps the client choose the proper coverage he or she needs and doesn’t buy any unnecessary insurance.

There are dozens of other riders.  Some are simple add ons, like a rider that provides a personal doctor for cancer, or a rider that ensures that all of your medical files are on a disc-on-key for immediate use when going to the hospital.  There are also elaborate riders such as one that pay for a TV in the hospital, allows the sick person to order take away once a day, have his or her spouse stay at a nearby hotel and even pay for a temporary secretary to reschedule all of the person’s meeting while he or she is in the hospital.  Every insurance company has its own specific riders and can choose to only allow certain riders with certain policies. 

A final word on this subject.  Some of you have the option of opting for additional health coverage through your work.  This is usually a great idea and the cheapest way to get a good policy at a fraction of the price.  A group policy includes at least 50 people at a single workplace – so you can’t just make a group out of you and your neighbours.  The only downside to a group insurance policy is that you can’t add any riders that aren’t in it – you either take or leave the package.

If you have any questions about the various policies or are interested in getting some insurance for your family or a group policy for your business, feel free to contact me at jonnydegani@gmail.com.