Israel income tax in 2026: brackets, credit points and how to calculate it, with what changes in 2027

The 2026 tax brackets

Israeli tax is computed on monthly taxable income (annual income divided by twelve for the self-employed). There are seven steps, and each one applies only to the slice of income between its threshold and the next: earning one more shekel never pushes your whole salary into a higher bracket. That is the marginal rate principle, which Israeli payslips never spell out and which causes most of the confusion.

The 50% on the last line is the 47% marginal rate plus the mas yesef, a 3% surtax on the part of annual income above ₪721,560, all income types combined. For capital income (gains, dividends) above the same threshold, the surtax has been 5% since 2025.

These brackets apply to earned income: salaries, self-employment profit, pensions. Passive income of a person under 60 starts higher up the ladder, as explained below.

What changed in 2026: Amendment 288

The 2026 brackets were changed mid-year. The Economic Efficiency Law attached to the 2026 budget, published in the official gazette on 31 March 2026, introduced Amendment 288 to the Income Tax Ordinance. It widened two brackets, retroactively to 1 January 2026:

In practice, ₪2,850 of monthly income moved from 31% to 20%, and ₪2,660 moved from 35% to 31%. The saving peaks at about ₪420 a month (just over ₪5,000 a year) for anyone earning ₪25,100 or more; it is zero below ₪16,150.

Many websites, including accounting firms, still show the old brackets (₪16,150 / ₪22,440). If you compare calculators, that is the first thing to check.

Credit points (nekudot zikui)

After the bracket calculation, the tax is reduced by a fixed amount per credit point: ₪242 a month in 2026, ₪2,904 a year. The point is deducted from the tax, not from income, so it is worth the same to everyone regardless of salary. And since tax cannot go negative, unused points are lost (with a few exceptions between spouses).

Points for children, by age and by parent

This is the least understood item, and the one that changed most. Since 2024, points for children under three have been raised sharply and are now identical for mother and father up to age five. The age that counts is the age the child reaches during the tax year.

Example: an employed mother with a 2-year-old and an 8-year-old has 2.75 + 4.5 + 2 = 9.25 points, wiping out ₪2,238 of tax every month. On a ₪15,000 salary her income tax falls to zero; only the contributions remain. The father has 2.25 + 4.5 + 1 = 7.75 points. "Single parent" means a parent raising the children without a partner and receiving the child allowance: they get both parents' points.

Four worked examples

All examples use the 2026 brackets, the 2026 credit point value and the 2026 contribution rates. They ignore mandatory pension savings and keren hishtalmut, which reduce the tax further.

Bituach Leumi and health tax: the other tax

On an Israeli payslip, income tax is only the first of three deductions. The other two, collected together by Bituach Leumi (the National Insurance Institute), are national insurance (basic pension, unemployment, maternity, disability) and health tax (mas briut, which funds your kupat holim). They also work in steps, but with only two:

The employer adds its own share (4.27% then 7.60%), invisible on the payslip. The reduced-rate threshold, ₪7,703 in 2026, is revised every 1 January. The reference average wage used by Bituach Leumi is ₪13,769 in 2026.

The self-employed: same brackets, different mechanics

A self-employed person (atzmai) is taxed on profit, meaning revenue minus deductible expenses, on the same brackets as an employee, after dividing the annual result by twelve. Three differences change everything in practice:

• Advance payments (mikdamot). There is no withholding at source: the Tax Authority sets a percentage of turnover to pay every month or two, settled with the annual return.
• Heavier social contributions: 7.70% then 18% of income, against 4.51% then 12.17% for an employee, because the self-employed also pay the "employer" share. In return, 52% of national insurance contributions are deductible from taxable income.
• A mandatory annual return, whatever the income level, with an accountant in the vast majority of cases.

The choice between osek patur, osek zair and osek murshe status is not about income tax but about VAT and how expenses are reported. It has its own guide.

Passive income and capital income

The brackets above are for "personal" earned income (hachnasa mi-yegia ishit). For a person under 60, income that does not qualify (rent under the regular regime, non-salary foreign income, etc.) skips the first three steps: it is taxed from the 31% bracket upward. From age 60, all income follows the full ladder from 10%.

Capital income has its own flat rates, outside the brackets: generally 25% on real capital gains, interest and dividends, 30% for a substantial shareholder, 15% on certain non-indexed interest. Residential rent in Israel can, at your choice, be exempt up to a monthly ceiling, taxed at a flat 10% with no deductions, or added to the brackets with expenses deducted.

A return becomes mandatory once rent taxed at the flat rate exceeds ₪375,000 in the year, and always if you choose the regular regime with expense deductions.

New immigrants and returning residents

An oleh hadash gets two separate benefits that should not be confused.

Extra credit points for four and a half years

For olim who arrived from 1 January 2022, the schedule runs from the date of aliyah (it can be paused during military service, studies or a long stay abroad):

The schedule is deliberately light in the first year, when many olim are not yet working, and heaviest in the second. Olim who arrived before 2022 follow the old schedule (3 points for 18 months, then 2, then 1, over 42 months).

Ten years without Israeli tax on foreign income

For ten years from the date of settling, income produced outside Israel (foreign salaries, rent from a property in the US or UK, dividends, interest, capital gains on assets held abroad) is exempt from Israeli tax. The same regime applies to a "veteran returning resident" (toshav chozer vatik) who was away for at least ten years. Israeli-source income is taxed normally from day one.

Two frequent traps: the exemption covers Israeli tax, not your home-country obligations (an American still files a 1040, an FBAR and often Form 8938 every year); and it does not cover social contributions, so Bituach Leumi can bill minimum contributions to a resident with no Israeli income.

Americans and Brits: what Israeli tax does not settle

This section is the summary; the full guide to the US–Israel treaty, FBAR and the foreign earned income exclusion goes line by line.

US citizens and green-card holders

The United States taxes its citizens on worldwide income wherever they live, so moving to Israel adds an Israeli return on top of the US one rather than replacing it. In practice, most Americans working in Israel owe nothing to the IRS on their Israeli salary, for two reasons that can be combined: the foreign earned income exclusion (US$132,900 for tax year 2026, up from $130,000 in 2025) removes salary from US taxable income, and the foreign tax credit offsets the Israeli tax paid, which is almost always higher than the US tax on the same income. The 1975 US–Israel tax treaty is old and limited, and has no "saving clause" relief for most individuals, so the exclusion and the credit do most of the work.

Three things catch people out. Israeli national insurance is a social charge, not an income tax, so it is not creditable against US tax; and because there is no totalization agreement between the US and Israel, a self-employed American can owe US self-employment tax on top of Bituach Leumi. Second, the oleh exemption on foreign income means nothing to the IRS: US-source income (a rental in New Jersey, a brokerage account) is still taxed by the US as usual. Third, reporting: any American with over US$10,000 in aggregate in non-US accounts files an FBAR (FinCEN 114), and higher balances trigger Form 8938; Israeli pension funds, keren hishtalmut and kupat gemel accounts count and have their own reporting questions.

UK citizens

The UK, unlike the US, stops taxing you on foreign income once you are non-resident, so a British oleh who passes the statutory residence test generally has only Israel to deal with for salary. The 1962 UK–Israel convention, substantially rewritten by a 2019 protocol in force since 2020, decides which country taxes pensions, rental income, dividends and gains. UK rental income stays taxable in the UK (with a credit in Israel once the oleh exemption ends), while the treatment of UK state, occupational and personal pensions depends on the type of pension and on when you draw it, which is exactly where a cross-border advisor earns their fee. ISAs lose their tax-free status once you are an Israeli resident: Israel taxes their income and gains after the ten-year exemption.

Annual return and tax refund

Unlike the US or the UK self-assessment system, the majority of Israeli employees do not file a return: withholding by the employer, based on Form 101, serves as the final tax. The annual return (doch shnati) becomes mandatory in the following cases, for 2025 income reported in 2026:

• taxable income above ₪721,560 in the year (the surtax threshold), even if the employer withheld everything;
• self-employment or partnership income, whatever the amount;
• foreign income above ₪375,000, or foreign income that does not qualify for the exemption;
• foreign assets (accounts, property, rights) worth ₪2,086,000 or more at any point in the year;
• rent taxed at the flat rate above ₪375,000, or rent reported under the regular regime at any amount;
• sales of listed securities above ₪2,810,000, or interest above ₪717,000;
• two employers without tax coordination, or a specific request from the Tax Authority.

Deadline: 31 May for a paper return, 30 June for an online return, unless an extension is granted to your accountant.

The tax refund (hechzer mas)

An employee who is not required to file can still submit a refund claim, Form 135, to recover over-withheld tax. The most common cases: a job change during the year (each employer applied the brackets from zero), months without salary, credit points not applied (incomplete Form 101, a child born in the year, a degree, aliyah), donations to recognised charities, pension or life-insurance contributions not taken into account. The claim can go back six years: in 2026, the years 2020 to 2025 can still be claimed. The Tax Authority refunds with interest and indexation, usually within a few months.

Six common mistakes

1. Thinking the whole salary moves into the higher bracket. Only the slice above the threshold is taxed at the bracket's rate. Turning down a raise "to stay in the lower bracket" never makes sense.
2. Deducting credit points from income. They come off the tax. 2.25 points is ₪544.50 less tax, not ₪544.50 less income.
3. Skipping Form 101. Without this form filled in with your employer at the start of the year, they withhold at the maximum rate ignoring your points. The excess is recoverable, but months later.
4. Two employers with no coordination (teum mas). Each employer applies the brackets from zero, under-withholding; or one withholds at the maximum, over-withholding. Coordination is requested online on the Tax Authority website.
5. Ignoring the 2026 bracket change. January to March 2026 withholding was computed on the old brackets by many employers.
6. Never claiming a refund. Billions of shekels of over-withheld tax go unclaimed every year. An employee who changed jobs, had a gap in income, or did not use all their points is almost always owed a refund, claimable for six years.

What changed and what is coming: 2024 → 2027

• January 2024 Last inflation indexing of the brackets before the freeze.
• January 2025 Bracket and credit-point indexing frozen for 2025–2027 (2025 budget law). VAT raised to 18%. Surtax on capital income raised to 5% above the threshold.
• 31 March 2026 Amendment 288: 20% and 31% brackets widened, retroactive to 1 January 2026. Corrected tables published by the Tax Authority in April.
• January 2027 Bracket thresholds stay frozen. The credit point value, Bituach Leumi thresholds and some ceilings may be revised: this page is updated as soon as the official figures are published.

Glossary: the words on your payslip