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The government has recently come out with the tax and National Insurance rates for the new year, which can be found on their official Web sites. Following is a non-exhaustive summary of the rates and tax brackets for 2009.
Income tax rates
The current monthly income tax rates for employment and freelance income are as follows:
â€¢ 10%: on income up to NIS 4,590
â€¢ 15%: on income of NIS 4,591 - 8,160
â€¢ 23%: on income of NIS 8,161 - 12,250
â€¢ 30%: on income of NIS 12,251- 17,600
â€¢ 34%: on income of NIS 17,601 - 37,890 - 46%: on income above NIS 37,890
The current monthly income tax rates for other (passive) income are as follows:
â€¢ 30%: on income up to NIS 12,250
â€¢ 32%: on income of NIS 12,251 - 17,600
â€¢ 34%: on income of NIS 17,601 - 37,890
â€¢ 46%: on income above NIS 37,890
In 2008, the top rate of tax was higher at 47%.
Personal tax credits
Israeli residents are entitled to personal tax credits, which are known as credit points. These credit points are deducted from the tax liability (not from income). Each credit point is currently worth NIS 197 per month. A man generally receives 2.25 credit points (which reduces tax by NIS 443 per month) and a woman receives 2.75 credit points (which reduces tax by NIS 541). If a couple both work and opt for separate tax calculations, the wife will receive an extra credit point for each child under 18 years of age and half a credit point for a child born or reaching 18 in the tax year.
New immigrants (Olim) receive an extra 3 credit points in the first 24 months after their aliya, 2 extra credit points in the next 12 months and 1 extra credit point in the next 12 months. New residents and senior returning residents (who return to Israel in 2007 - 2009 after living 5 years abroad) also enjoy a 10-year Israeli tax exemption for non-Israeli source income and capital gains and an exemption for 5 - 20 years regarding interest on "Patach" foreign currency time deposits of three months or more at an Israeli bank.
There is a 35% tax credit for contributions to Israeli charities approved under Section 46 of the Income Tax Ordinance. In 2008, following a recent amendment, this applied to contributions of at least NIS 400 but no more than NIS 4,208,000. US taxpayers should consider claiming a 25% tax credit for Israeli tax purposes and a tax deduction for US tax purposes, for contributions to US charities that are "friends of" Israeli charities, under special rules in the US-Israel tax treaty.
Persons certified as being 100% disabled (or 90% in certain circumstances) for 185-364 days in a tax year are exempt on income of up to NIS 65,400 per year, pro rated by reference to the number of days' disability. If they are disabled 365 days or more and derive employment or freelance income, they are exempt on income of up to NIS 546,000 per year, pro rated by reference to the number of days' disability. Interest on money derived from bodily injury compensation is exempt up to NIS 233,280.
Automobiles for employees
The use of an automobile provided by an employer is taxable ("Shovi shimush"). The amount taxed depends on the price of the car as new. There are 7 automobile price groups and the monthly taxed benefit for each is currently as follows: Group 1 - NIS 1,700; group 2 - NIS 1,860; group 3 - NIS 2,630; group 4 - NIS 3,200; group 5 - NIS 4,440; group 6 - NIS 5,720; group 7 - NIS 7,290.
Other tax limits
There are a number of other monetary tax limits. They mainly relate to different types of retirement and savings plans and life insurance policies, discharged soldiers and certain academic degree holders.
National insurance (bituah leumi)
The current monthly national insurance rates for Israeli residents, including the health levy, are as follows:
â€¢ Employment income up to NIS 4,757: employer pays 3.45%, employee pays 3.5%
â€¢ Employment income of NIS 4,758 - 38,415: employer pays 12%, employee pays 5.43%
â€¢ Freelance income up to NIS 4,757: 9.82%
â€¢ Freelance income NIS 4,758 - 38,415: 16.23%
â€¢ Passive income up to NIS 4,757: 9.61%
â€¢ Freelance income NIS 4,758 - 38,415: 12%
â€¢ Payment if no income: NIS 147
Other rates apply to early retirers, domestic helpers and certain others.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
Leon Harris is an international tax specialist.