Economic changes that will affect your wallet in 2017

By
January 1, 2017 06:44

Most workers to pay less tax, get additional day off or two.




money

Shekel money bills. (photo credit: REUTERS)

The tax year which starts on Sunday brings an array of changes created by the previous year’s legislation, the 2017-18 state budget and its accompanying Economic Arrangements Law. The new legislation and economic regulations that go into effect on Sunday will have a direct effect on the Israeli citizen’s pocket.

First and foremost, electricity prices have now gone up by 3.7% compared to last year. But 2017 brings some good news in the reform of tax rates and the redefinition of tax brackets. As of Sunday, employees earning up to NIS 20,000 gross monthly will pay less income tax, and people earning NIS 60,000 or more monthly will pay a higher income tax.

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The tax reform also takes families into consideration.

Any household that jointly earns between NIS 22,000 and NIS 80,000 will save up to hundreds of shekels each month, while households that make more than NIS 80,000 will pay an additional NIS 260 each month, compared to last year.

Additionally, the first tax bracket now covers those earning up to NIS 6,220 a month, up from NIS 5,220; while the minimum wage has been increased to NIS 5,000 a month for full-time employees, or NIS 26.88 per hour.

Altogether this means that anyone with a low to mid-level income will save a few dozen shekels a month on income tax as of Sunday.

While the tax cuts for the middle class are certainly good news for many, a slight cut will be made from monthly salaries as new pension fund regulations take an increase of 1% in both employee and employer contribution to the worker’s pension fund. From this month, employees will have to contribute 6% of their monthly salary to the pension fund and the employer will contribute an additional 6.5%.

This regulation aims to enlarge the pension fund upon retirement and was pushed forward as a countermeasure to the looming pension crisis economists warn about, wherein future generations are at risk of not having a pension. Overall, future pension payments are expected to swell by anywhere between a few dozen shekels to a few hundred shekels, depending on the salaries earned while working.

One plan that was the target of attention and excitement, but which is not expected to be implemented until 2017, is the six-Sundays-off bill. This proposal by MK Eli Cohen (Kulanu) is meant to be an intermediate stage before Israel moves to having every Sunday off and there would be one three-day weekend every other month. However, it has only passed a preliminary reading in the Knesset thus far.

Employees can also expect extra vacation days from now on. Anyone who has been working for more than four years in the same place will receive two extra vacation days each year, while those with less than four years’ seniority will receive one extra day off.

As part of the new pension regulations, as of Sunday, self-employed individuals are obligated by law to open a pension fund; currently, 40% of self-employed citizens do not have a pension plan.

Self-employed individuals, however, will be getting a discount on their National Insurance Institute deductions from now on and will receive better tax rebates on future deposits to a pension fund.

To avoid possible sanctions by the relevant enforcement agencies, self-employed citizens are advised to contact an accountant or investment consultant in order to set up a savings plan for a pension fund.

Another bureaucracy-cutting regulation now introduced to the pension funds is the demand to unify every citizen’s pension plan into one account. People often change jobs, and many employers open many pension plans, so someone might discover he has several pension funds across several financial institutions, some of which might be lying dormant without making any money and only paying the financial institution a monthly or annual maintenance fee.

As of this month, individual’s pension funds, whether active or dormant, are to be integrated into one active fund. The process will happen automatically without the individual’s intervention, unless that person deliberately chooses not to unite his different funds.

Meanwhile, Finance Minister Moshe Kahlon’s Savings Plan for Every Child has officially begun. Under Kahlon’s plan, parents are able to open a savings account through the National Insurance Institute for any child under 18, into which the NII will make monthly deposits of NIS 50, to be withdrawn by the child upon reaching the age of 18 or 21. Parents can choose to match the NII’s deposits with an additional NIS 50 a month, doubling the future nest egg.

Parents can choose whether to open this plan in a bank account or a provident fund.

However, parents to children with US citizenship are strongly advised to open this plan in a bank account, since due to various regulations a provident fund will be double taxed, by both Israel and the US, upon withdrawal, or even before withdrawal by the US Internal Revenue Service.

Two important programs of the Israel Tax Authority have come to an end. First, the 10-year tax exemption for new immigrants and returning citizens who arrived in Israel in 2007 from reporting and paying taxes on income from abroad has expired. Any olim who now celebrate their 10th year in Israel and still have earnings or a regular income from their country of origin are advised to report it or face sanctions. The so-called Tax Holiday is otherwise still in effect and any new batch of immigrants to arrive after 2007 are still entitled to the exemption for 10 years from the year they made aliyah.

Second, a similar two-year Tax Authority amnesty program that gives Israelis the option to voluntarily disclose previously unreported overseas earnings or bank accounts without incurring criminal penalty, has now expired without being renewed for another year. Anyone who did not take advantage of the program while it lasted may now be open to criminal prosecution and sanctions.

“Anyone not protected by the amnesty program can expect up to seven years in jail for tax evasion, tax fraud, or any other tax related offense.

If the authority decides that a specific case can constitute money laundering, then those individuals are looking at a 10-year sentence,” Tax Authority spokeswoman Idit Lev previously told The Jerusalem Post.

Lahav Harkov contributed to this report.


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