Income Tax Rates in Israel

Income Tax Rates in Israel

What are the tax rates in Israel?

Like most other countries, Israel has a progressive income tax system that can often be confusing. Based on the Israel income tax brackets system, different amounts of your income are taxed at different rates. Here’s how it works.

Breaking down the Israel income tax rates brackets

Your income is split into different brackets. Each bracket is taxed at a different rate. As you make more money, your income that falls into the higher brackets are taxed at higher rates. You pay the tax rate applicable to each bracket of income.

So, What does this mean?

Let’s say John has an annual profit from his Osek Murshah of 220,000 ₪ (and no other Income).
Let’s calculate his taxes:

On the first bracket – 75,960₪  he pays tax at 10%: 75,960* 10% = 7,596₪ 
2nd bracket – 75,961₪  to 108,960₪  he pays 14%: 33,000 * 14% = 4,620₪
3rd bracket – 108,961₪  to 174,960₪  he pays 20%: 66,000 * 20% = 13,200₪
4th bracket – 174,961₪  to 220,000₪  he pays 31%: 45,040 * 31% = 13,962₪

Total tax: 39,378₪

So, John pays a total of 39,378₪  tax on 220,000₪ of income. Which means that his ‘marginal tax rate’ is therefore 17.9%.

But that’s not all…

In reality, John will pay less Income Tax once his tax credits have been applied. Individual’s are entitled to an annual tax deduction which is calculated based on their personal circumstances. Read our Credit Points Guide for more information.

However, it’s important to remember that in addition to Income Tax calculated using the Israel income tax rates brackets, an עצמאי (self-employed) must also contribute to Bitauch Leumi (National Insurance) and their pension fund.

Are there any exceptions to the tax brackets system?

Yes, of course. There are numerous types of incomes which have special tax rates – lower than the rates specified in the tax rates brackets system. Read Tax rates on Passive Incomes Guide.

You can find more information on this topic in Hebrew on the KolZchut website.

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