What are the Israel Income tax rates in Israel?
The income tax on individuals in Israel range between 10% and 50%. Which tax rate you pay will depend on the types of income and how much you earn.
Use the Dray & Dray Income Tax Calculator
If you’re registered as a freelancer (Osek Murshe or Osek Patur), our software can calculate how much tax you’ll owe. It’s simple, quick and easy. Just answer a few questions and see your result. Click below to open our income tax calculator.
Tax per bracket
0 – 81,480
81,481 – 116,760
116,761 – 187,440
187,441 – 260,520
260,521 – 542,160
542,161 – 698,280
698,281 and +
* Passive incomes (rent, interest, dividends, capital gains, etc.) of an individual under the age 60 are not eligible for the tax rate brackets below 31%.
How do income tax brackets work?
Like most other countries, Israel has a progressive income tax system that can often be confusing for new taxpayers. Based on the tax brackets system, as your income increases, you’ll pay higher tax rates – But you still pay the lower rates of tax on the part of income which fell into the lower brackets.
When your income is split into different brackets. Each bracket is taxed at a different rate. You start in the smallest bracket, once that’s full, you move into the next. As you make more money, only the income in the higher brackets are taxed at higher rates.
Let’s say you have an annual profit in from your Osek Murshe in 2022 of 220,000 ₪ (and no other Income). So a basic tax calculation might look like this:
- On the first bracket; up to 77,400₪ you pay tax at 10%:
77,400* 10% = 7,740₪
- Then move into the 2nd bracket, the income between 77,401₪ to 110,880₪ you pay 14%: 33,479 * 14% = 4,687₪
- And you keep going until you reach the bracket with the highest level of income.
So, if you have a high income, you won’t pay income tax at a high rate on all of your income, only the part which falls into the higher tax brackets.
Applying Credit Points, National Insurance, etc...
But in reality, you pay less Income Tax once your 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.
Also, it’s important to remember that in addition to Income Tax calculated using the Israel income tax rates brackets, you must also contribute to Bituach Leumi (National Insurance).
You can find more information on this topic in Hebrew on the KolZchut website.
Active Vs. Passive income
Active income is work that you’re actively involved in. For example working as an employee or running a business. Passive income is earned from assets that you own e.g. rental income, dividends etc.
Individuals under the age of 60 can’t use the lower tax brackets (under 31%) for passive incomes.
Incomes taxed at lower tax rates
There are numerous types of incomes which have special tax rates. And these are lower than the rates specified in the tax rates brackets system. For example, tax on dividends can reach a maximum of 25% or 30%.
- Rental income (Israeli residential) – 10% (conditions apply)
- Rental income (non-Israeli) – 15% (conditions apply)
- Interest – usually 25%
- Dividends – 25% (30% for a controlling shareholder)
- Capital gains – usually 25%
- Lottery wins – 25%
The special tax rates for rental income depend on the location and classification of the real estate. We’ve written are article which explains this for you.
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