Israel exempts income paid to disabled people, subject to various conditions. How do you know if you are eligible for a disability tax exemption? What are the conditions? What do you need to know to get started?
Such a tax exemption is granted to certain people based on their health and physical state. While we may know what our duty is in matters of tax payments, all too often we don’t think about our rights. We will discuss them in this article.
Eligibility conditions
There are several conditions that must be met to be eligible for an income tax exemption on disability grounds. The first condition is 90% overall disability permanently or temporarily for a period exceeding 185 days. The second condition is at least 40% disability of at least one organ. Anyone who does not meet these conditions may not be eligible for an exemption.
A question that always arises regarding eligibility is the issue of weighting the percentages. People sometimes think that if they do not have a high percentage of disability, they are not entitled to an exemption at all, but this is not true. Percentages can be weighted together to reach the 90% that qualify for the exemption.
For example, if a person has a double disability such as 30% disability due to injury and another 70% disability due to illness, then together they may reach the amount of the percentage required for eligibility.
Why go for an exemption?
If you think that you may deserve an income tax exemption you should try and attain it. First, because day-to-day coping with personal disabilities can be complex and require significant resources. Second, the amount of tax saved can be invested in health, lifestyle adjustments and treatment that may alleviate pain and suffering.
Are retroactive tax refunds possible?
In one word, yes. Many people find out about income tax exemption eligibility at a late stage, sometimes many years after paying the tax concerned. In such cases it is possible to request a retroactive refund going back up to six years.
What happens if the disabled person died before claiming exemption?
It is very unfortunate, but it happens quite a bit. In such a case, his or her heirs can apply for a tax refund along with the relevant documentation to the assessment office of the Tax Authority closest to the residential address.
Who determines the percentage of disability that qualifies for the exemption?
The disability percentage is determined by a medical committee of the National Insurance Institute and sometimes the Justice Ministry. This is after submitting an application to the National Insurance Institute together with medical documents about the applicant’s health and physical condition.
The committee will have doctors who give their opinion, sometimes a physical examination is also needed and questions may be asked about the applicant’s state of. Therefore, it is advisable to come prepared to the committee both in terms of forms and in terms of questions that may be asked.
How do you apply for an exemption?
The application for an income tax exemption is submitted to the offices of the Tax Authority according to the taxpayer’s residential address. The application should be submitted only after receiving the disability percentage and meeting the above eligibility conditions.
How much?
The tax exemption amount depends on the type of income you derive. In the case of earned income from employment or a business, an amendment (number 2932) was recently passed by the Knesset, on November 15, 2021. Consequently, in 2022, earned income up to NIS 628,800 may be exempt if the exemption stems from IDF service, up to NIS 409,200 for other earned income, and up to NIS 75,360 for unearned (investment) income.
Any tax refund will be on exempt income multiplied by the applicable tax rates of the taxpayer – up to 50% for earned income, up to 33% for unearned income.
Should I use a professional?
People who suffer from disabilities, injuries and illnesses typically face many difficulties. If they still work, these difficulties are compounded. Dealing with bureaucracy is not always easy for people who are in such a day-to-day struggle, therefore the help of a professional who specializes in the field should be considered. Typically, such professionals are only paid upon success. Not all professionals use lawyers to provide necessary legal support.
As always, consult experienced advisers in each country at an early stage in specific cases. Nir Halfon is owner and director of “For Your Rights” which specializes in disability cases. Leon Harris is a certified public accountant at Harris Horoviz Consulting & Tax Ltd. Biahzmail@gmail.com, leon@h2cat.com