Taxes in Israel
Israel's tax system is progressive with rates reaching up to 50%. The 2026 reforms introduce significant changes for new immigrants.
Income Tax Brackets (2025-2026)
| Annual Income (NIS) | Rate |
|---|---|
| 0 - 79,560 | 10% |
| 79,561 - 114,120 | 14% |
| 114,121 - 177,360 | 20% |
| 177,361 - 247,440 | 31% |
| 247,441 - 514,920 | 35% |
| 514,921 - 663,240 | 47% |
| Above 663,240 | 50% |
Note: Tax brackets are frozen through 2027 (not adjusted for inflation), effectively increasing real tax burden.
2026 bracket adjustments: The 20% bracket expanded to cover income up to ₪19,000/month; 31% bracket starts at ₪19,000; 35% bracket raised to ₪25,100/month.
Additional Taxes
| Tax | Rate |
|---|---|
| National Insurance (Bituach Leumi) | ~7.5% employee + ~7.5% employer |
| Health Insurance Tax | 3.1-5% (included in Bituach Leumi) |
| VAT | 18% (increased from 17% in Jan 2025) |
| Capital Gains | 25-30% |
| Surtax on high capital income | 2% above ₪721,560/year |
| Corporate Tax | 23% |
2026 Tax Reform for New Immigrants
Arriving in 2026 (new rules):
| Year | Israeli Income Exemption |
|---|---|
| 2026-2027 | Up to NIS 1,000,000 (0% tax) |
| 2028 | Up to NIS 600,000 |
| 2029 | Up to NIS 350,000 |
| 2030 | Up to NIS 150,000 |
Plus: 10-year exemption on foreign-source income and capital gains (unchanged).
But: Full worldwide reporting obligations from day one (10-year reporting exemption removed for 2026+ arrivals).
Arrived by end of 2025:
- 10-year foreign income reporting exemption preserved
- NOT eligible for the new Israeli-source income exemptions
Tax Residency
You become an Israeli tax resident if:
- Your center of life is in Israel
- You spend 183+ days in Israel in a tax year
- Or 30+ days in current year + 425+ days across current and two prior years
Israeli tax residents pay tax on worldwide income.
Key Deductions and Credits
- Tax credit points (Nekudot Zikui): Every resident gets 2.25 points (~₪6,300/year reduction). New immigrants get additional credit points for 3.5 years.
- Pension contributions: Tax-deductible up to limits
- Donations: 35% tax credit for donations to approved institutions
- Working parents: Additional credit points
Filing Requirements
- Tax year follows the calendar year (January-December)
- Filing deadline: April 30 (extensions available)
- Salaried employees: taxes withheld at source, many don't need to file
- Self-employed: must file annual returns
- New immigrants: may need to file even if exempt, especially under 2026 rules
US-Israel Tax Treaty
The US-Israel tax treaty helps prevent double taxation:
- Foreign Earned Income Exclusion (FEIE): up to $132,000 (2026)
- Foreign Tax Credit offsets Israeli taxes against US liability
- Combined with Israeli immigrant exemptions, effective tax burden can be very low
- Requires careful coordination - hire a dual-qualified tax advisor
Pro Tips
- •The 2025 vs 2026 arrival decision has major tax implications - consult an advisor
- •New immigrants receive additional tax credit points for 3.5 years
- •Salaried employees usually don't need to file - taxes are withheld at source
- •The US-Israel tax treaty combined with exemptions can minimize dual taxation
- •VAT at 18% is included in all displayed prices - no surprise at checkout
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