An individual, including an employee or self-employed, is required to pay tax on his income according to the level of income tax levels for a year in which the income was generated or accrued. The tax is calculated in annual terms, although in practice it is deducted from the employee’s salary each month.
The purpose of the article is to explain what the tax brackets are, how they are calculated, and other information.
What are income tax brackets?
Income tax in Israel on an individual (employee, self-employed, or person who has other income that is not necessarily from work or business or occupation) is calculated according to income tax levels. The taxation method is progressive – the higher the income, the higher the tax rate on that part of the income.
Income tax brackets (In Hebrew: « Madregot Mas Hachnasa », מדרגות מס הכנסה) are ranks or strata of income, so each stratum is taxed at a different rate which is higher with an increase in the individual’s wage. In fact, the income tax bracket is a range of wages, for which the wage range is taxed at the rate determined by the law.
The tax is levied on the taxable income, which is income after deductions, offsets, and exemptions allowed under the law and before the tax credits. After calculating the tax according to the steps, it is possible to calculate whether the same person is entitled to a tax reduction due to various credits under the law. Finally, the final tax that the person has to pay is calculated.
Nevertheless, an individual may pay tax not according to income tax brackets, if it is income for which there is taxation by another method (such as a uniform rate of the entire amount of income).
In addition, income tax brackets take into account, among other things, what the income was received from. If the income was received from personal exertion or not from personal exertion, when on personal exertion there are stairs with a lower rate.
Target population – who must?
Income tax according to income tax levels is imposed on all of the following:
- An individual resident in Israel – income from all sources according to the law, which was produced or grown in Israel or outside Israel.
- An individual foreign resident – income from all sources according to the law, produced or grown in Israel.
Amount of income tax brackets
As previously written, income tax brackets are calculated according to 2 sources of income:
- Income from personal exertion.
- Income from Non-personal exertion.
However, first of all, it is important to say that income tax is a tax calculated on an annual basis and not a monthly basis.
1. Tax brackets on income from personal exertion
Personal income – all income as a result of work or effort. Including: income from work, income from a business or occupation, a pension from a previous employer (budgetary pension), a pension from a provident fund, survivors’ pension, disability pension, a pension paid from Bituach Leumi, severance pay, retirement grant or death grant, The amount of capitalization of benefits above, income from the rent that at least 10 years before the rent was used as personal income, business or occupation.
These are the tax rates:
| Monthly income (monthly tax brackets) | Annual income (annual tax brackets) | Tax rate |
|---|---|---|
| Up to 6,790 NIS | Up to 81,480 NIS | 10% |
| 6,791 NIS – 9,730 NIS | 81,481 NIS – 116,760 NIS | 14% |
| 9,731 NIS – 15,620 NIS | 116,761 NIS – 187,440 NIS | 20% |
| 15,621 NIS – 21,710 NIS | 187,441 NIS – 260,520 NIS | 31% |
| 21,711 NIS – 45,180 NIS | 260,521 NIS – 542,160 NIS | 35% |
| 45,181 NIS or more | 542,161 NIS or more | 47% |
In addition, a person who has an annual income above NIS 698,280 (approximately NIS 58,190 per month), must pay tax on high income (additional tax) plus 3%. That is, the total tax on high income is 50% (47% + 3%).
example:
A person earns NIS 10,000 per month in income as a result of working on an annual average (NIS 120,000 per year). What is the amount of tax he will pay?
- For the salary up to NIS 81,480, he will pay 10% – that is, NIS 8,148.
- For the salary above NIS 81,480 and up to NIS 116,760 (a total of NIS 35,280), he will pay 14% – that is, NIS 4,939.20.
- For the salary above NIS 116,760 and up to NIS 120,000 (a total of NIS 3,240), he will pay 20% – that is, NIS 648.
- The total income tax that one must pay per year is NIS 13,735.20 (or NIS 1,144.60 per month).
However, from this amount, it is possible to reduce the credits that the same person is entitled to: tax credit points, a tax credit for pension provision, tax benefits for different localities, and more.
Regarding daily worker
| Daily income (daily tax brackets) | Tax rate |
|---|---|
| Up to 271.60 NIS | 10% |
| 271.61 NIS – 389.20 NIS | 14% |
| 389.21 NIS – 624.80 NIS | 20% |
| 624.81 NIS – 868.40 NIS | 31% |
| 868.41 NIS – 1,807.20 NIS | 35% |
| 1,807.21 NIS or more | 47% |
2. Tax brackets on income from non-personal exertion
Non-personal income – all other income from non-personal exertion. Including: rent for a residential apartment, etc.
These are the tax rates:
| Monthly income (monthly tax brackets) | Annual income (annual tax brackets) | Tax rate |
|---|---|---|
| Up to 21,710 NIS | Up to 260,520 NIS | 31% |
| 21,711 NIS – 45,180 NIS | 260,521 NIS – 542,160 NIS | 35% |
| 45,181 NIS or more | 542,161 NIS or more | 47% |
In addition, a person who has an annual income above NIS 698,280 (approximately NIS 58,190 per month), must pay tax on high income (additional tax) plus 3%. That is, the total tax on high income is 50% (47% + 3%).
A person who has reached the age of 60 during the tax year is entitled to the tax payment according to tax brackets on personal income – even if in practice they were created not personal income.
More info
- Income tax levels are updated every year according to the change in the consumer price index (inflation) – a positive change means that the amounts are updated upwards and therefore the tax that has to be paid is expected to be lower at the same wage levels.
- An employee who paid more tax than he owed, or was entitled to various credits and did not receive them, may apply for an income tax refund after the end of the year.
- An employee who works in several jobs or receives income from several sources, needs to make an income tax adjustment in order to pay tax correctly and so that employers do not deduct according to the maximum rate.
- Income tax credit points, credit for pension provisions, and others – these are credits that can reduce the amount of tax calculated according to the tax brackets.
Other languages
- Hebrew – מדרגות מס הכנסה
- Russian – Уровни подоходного налога