Israel Income Tax Calculator 2025

How Israel Income Tax Works

Israel uses a progressive income tax system administered by the Israel Tax Authority (Rashut HaMasim). For 2025, taxable income is divided into seven brackets ranging from 10% on the lowest incomes to 50% on income exceeding ₪721,560 per year. Unlike many countries that tax only income above a threshold, Israel applies tax from the very first shekel — but the credit points system effectively creates a zero-tax zone for low earners.

Employees receive their salary net of tax through a Pay-As-You-Earn (PAYE) system where the employer withholds income tax, Bituach Leumi, and health insurance each month. Self-employed individuals must make quarterly advance payments and file an annual return. Both groups pay into the same Bituach Leumi system, though the rates differ.

Pension contributions are mandatory in Israel under the Pension Law 2008. Employees must contribute at least 6% of salary and employers at least 6.5%. The employee's portion is fully tax-deductible up to a ceiling, reducing taxable income before brackets are applied.

Understanding Credit Points (Nekudot Zikui)

Credit points are the cornerstone of Israel's tax relief system. Each credit point is worth ₪242 per month in direct tax credit (₪2,904/year for 2025). This is a tax credit — not a deduction — meaning it reduces your actual tax bill rather than your taxable income, making it highly valuable.

Every Israeli resident automatically receives 2.25 credit points (2 base + 0.25 residency bonus). Additional points are granted for: working women (0.5 points), each child under 18 (0.5–1 point depending on age), new immigrants (Olim Chadashim, up to 1 additional point for 3 years), disabled veterans, and other categories. Maximising your credit points is the single most effective legal way to reduce your Israeli tax bill. A family with two young children could have 4–5 credit points, worth ₪11,616–₪14,520 in annual tax savings.

Bituach Leumi and Health Tax

Bituach Leumi (National Insurance Institute — Mosd HaBituach HaLeumi) is Israel's social security system. Unlike income tax, it has a flat-rate structure with two tiers. For employees in 2025, the rate is 0.4% on monthly income up to ₪7,010 (approx. ₪84,120/year) and 7% on income above that ceiling, up to a maximum monthly income of ₪49,030. Income above the monthly cap is exempt from Bituach Leumi contributions.

Health insurance (Bituach Briut) is collected alongside Bituach Leumi at 3.1% on the lower tier and 5% on the upper tier. This funds membership in one of Israel's four Health Maintenance Organizations (Kupot Holim). Both Bituach Leumi and health insurance contributions are not tax-deductible for employees.

Self-employed individuals pay higher Bituach Leumi rates: 6.72% on income up to 60% of the average wage and 11.23% on income above that threshold. The calculation is based on net profit, not gross revenue.

Tips to Reduce Your Israeli Tax Bill

Several legal strategies can meaningfully reduce your Israeli income tax. First, maximise your pension contributions — contributions above the mandatory minimum (up to 7% employee, 7.5% employer) are tax-deductible. Second, contribute to a Keren Hishtalmut (study fund) if eligible; contributions up to ₪19,800/year are completely exempt from income tax and Bituach Leumi for employees. Third, claim all credit points you are entitled to by filing a tax rebate (Tahbula) with the ITA. Fourth, use Section 47 deductions for donations to approved institutions (46B). Fifth, if self-employed, deduct all legitimate business expenses before calculating net profit for tax. Consulting a licensed Israeli tax advisor (Yoetz Mas) is recommended for incomes above ₪300,000/year where optimisation yields the greatest returns.