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 7,010 NIS | Up to 84,120 NIS | 10% |
| 7,011 NIS – 10,060 NIS | 84,121 NIS – 120,720 NIS | 14% |
| 10,061 NIS – 16,150 NIS | 120,721 NIS – 193,800 NIS | 20% |
| 16,151 NIS – 22,440 NIS | 193,801 NIS – 269,280 NIS | 31% |
| 22,441 NIS – 46,690 NIS | 269,281 NIS – 560,280 NIS | 35% |
| 46,691 NIS or more | 560,281 NIS or more | 47% |
In addition, a person who has an annual income above 721,560 NIS (approximately 60,130 NIS 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 12,000 NIS per month in income as a result of working on an annual average (144,000 NIS per year). What is the amount of tax he will pay?
- For the salary up to 84,120 NIS, he will pay 10% – that is, 8,412 NIS.
- For the salary above 84,120 NIS and up to 120,720 NIS (a total of 36,600 NIS), he will pay 14% – that is, 5,124 NIS.
- For the salary above 120,720 NIS and up to 144,000 NIS (a total of 23,280 NIS), he will pay 20% – that is, 5,354.40 NIS.
- The total income tax that one must pay per year is 18,890.40 NIS (or 1,574.20 NIS 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 280.40 NIS | 10% |
| 280.41 NIS – 402.40 NIS | 14% |
| 402.41 NIS – 646.00 NIS | 20% |
| 646.01 NIS – 897.60 NIS | 31% |
| 897.61 NIS – 1,867.60 NIS | 35% |
| 1,807.21 NIS or more | 47% |
In addition to this, a person who has a daily income of over NIS 2,405.20 must pay tax on high incomes (additional tax) plus 3%. That is, the total tax on high incomes is 50% (47% + 3%).
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 22,440 NIS | Up to 269,280 NIS | 31% |
| 22,441 NIS – 46,690 NIS | 269,281 NIS – 560,280 NIS | 35% |
| 46,691 NIS or more | 560,281 NIS or more | 47% |
In addition, a person who has an annual income above 721,560 NIS (approximately 60,130 NIS 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