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Taxes in Israel: how does it work?

tax in Israel

The progressive method

Income tax in Israel is defined by the so-called "progressive tax" method.

The progressive method means that the more money a person earns, the higher their tax liability will be.

As you can see from the table below, your tax rate increases as your net taxable income rises.

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How to calculate net taxable income

In order to calculate your net taxable income, you need to take into account all the money you have earned in the past year, and deduct from this any exempt income, your tax losses from the current or previous years, and certain deductions allowed by the Israeli tax code.

Tax brackets in Israel

Once we have obtained your net taxable income, it will be divided into different levels. Each level will be subject to a different tax percentage (see table below).

These tiers are called "tax brackets" and are updated each year by the tax authorities. Israeli government.

Where does your money come from?

Your tax threshold will differ depending on where your money comes from.

The Israeli government has divided the source of revenue into 2 distinct categories:

  • Active income", which comes from the taxpayer's own work (יגיעה אישית), such as a monthly salary.
  • Passive income", which does not come from the taxpayer's own work, such as monthly rent.

Each of these sources benefits from different tax brackets and levels, as shown in the tables below:

Tax bracket in Israel :

Here are the brackets for 2024

Annual income 

(in shekels)

Tax ratesTax levelsAccumulated taxes
0 - 84,12010%8,4128,412
84,121 - 120,72014%5,12413,536
120,721 - 193,80020%14,61628,152
193,801 - 269,28031%23,39851,550
269,281 - 560,28035%101,850153,400
560,281 - 721,56047%75,801229,201
721,561 and over50%  

* Passive income (rent, interest, dividends, capital gains, etc.) from an individual under 60 is not eligible for the tax rate in Israel of less than 31%.

Here are the tranches for 2023

Annual income 

(in shekels)

Tax ratesTax levelsAccumulated taxes
0 - 81,48010%8,1488,148
81,481 - 116,76014%4,93913,087
116,761 - 187,44020%14,13627,223
187,441 - 260,52031%22,65449,877
260,521 - 542,16035%98,573148,450
542,161 - 698,28047%73,375221,825
698,281 and over50%  

* Passive income (rent, interest, dividends, capital gains, etc.) from an individual under 60 is not eligible for the tax rate in Israel of less than 31%.

Here are the brackets for 2022

Annual income 

(in shekels)

Tax ratesTax levelsAccumulated taxes
0 - 77,40010%7,7407,740
77,401 - 110,88014%4,68712,427
110,881 - 178,08020%13,44025,867
178,081 - 247,44031%21,50147,368
247,441 - 514,92035%93,618140,986
514,921 - 663,24047%69,711210,697
663,241 and more50%  

* Passive income (rent, interest, dividends, capital gains, etc.) from an individual under 60 is not eligible for the tax rate in Israel of less than 31%.

Here are the tranches for 2021

Annual income 

(in shekels)

Tax ratesTax levelsAccumulated taxes
0 - 75,48010%7,5487,548
75,481 - 108,36014%4,60312,151
108,361 - 173,88020%13,10425,255
173,881 - 241,68031%21,01846,273
241,681 - 502,92035%91,434137,706
502,921 - 647,64047%68,018205,724
647,641 and over50%  

* Passive income (rent, interest, dividends, capital gains, etc.) from an individual under 60 is not eligible for the tax rate in Israel of less than 31%.

Here are the brackets for 2020

Annual income 

(in Shekels)

Rates 

taxation

Tax levels Accumulated taxes
0 - 75,96010%7,5967,596
75,961 - 108,96014%4,62012,216
108,961 - 174,96020%13,20025,416
174,961 - 243,12031%21,12946,545
243,121 - 505,92035%91,980138,525
505,921 - 651,60047%68,469206,994
651,601 +50%  

* Passive income (rent, interest, dividends, capital gains, etc.) for an individual under 60 is not eligible for the tax rate in Israel of less than 31%...

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An advantage for seniors.
It is important to note, however, that for a person over 60, the Israel tax brackets on passive income will be the same as for active income.

Example for calculating tax in Israel on active income

The net taxable income of a person, whom we'll call Reuven for our example, is 10,500 Shekels per month. How can Reuven calculate the income tax he has to pay?

  • With income up to 7,010, he will be in the 1st bracket, which is subject to a tax rate of 10%, so he will have to pay 701 NIS.
  • Income between 7,010 NIS and 10,060 NIS, he'll be in the 2nd tax bracket, subject to 14%, so he'll have to pay 427 NIS.
  • On income between 10,060 NIS and 10,500 NIS, he will be in the 3rd tax bracket, subject to 20%, and will therefore have to pay 88 NIS.

The total income tax he will have to pay is therefore NIS 1,216/month.

To reduce Reuven's tax bill, we can withdraw any tax credits he may be entitled to.

See also: how Nekoudot Zikouye works.

See also: Pension fund deposit deduction.

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Boruch Levenson - CPA

A native English speaker qualified in both Israel and the UK, Boruch cares for the English speaking clients.

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Our consultants in Jerusalem

English speaking accountants in Israel
Address: Kanfei Nesharim 68. Merkaz Oranim
Phone number: 02 631 9000
Fax: 02 631 9005
Email: office@cpa-dray.com