Company Cars Taxed Differently Based on Employee Income Bracket

Employees receiving a company car in Israel are subject to a "usage value" tax, which is calculated as part of their taxable income, even though the money is not directly received. This "usage value" is determined by the car's list price when new, not the discounted price the employer may have paid. The calculation uses a linear model for cars registered from January 1, 2010, charging 2.48% of the original list price monthly, rounded to the nearest ten shekels. This price does not depreciate over time, meaning a five-year-old car is taxed the same as a new one. There is a cap on the list price considered for taxation, which is adjusted annually; for 2026, it's NIS 596,860.

Reductions are available for advanced propulsion vehicles: NIS 560 for hybrids, NIS 1,130 for plug-in hybrids, and NIS 1,350 for full electric vehicles. A proposed reform to further differentiate tax benefits for plug-in and electric cars was reportedly shelved.

The most significant factor influencing the actual tax burden is the employee's marginal tax rate. Two employees receiving the exact same car, with an identical "usage value" addition to their income, can pay vastly different amounts in taxes. For instance, one employee in a 20% tax bracket might pay around NIS 600 monthly on a NIS 3,000 "usage value," while another in the 47% bracket could pay approximately NIS 1,410 for the same benefit. This is in addition to National Insurance and health insurance contributions.

Consequently, the effective tax rate on this benefit can exceed the employee's stated tax bracket. An employee earning NIS 20,000 gross with a company car valued at NIS 180,000 might face a total monthly tax of about NIS 1,925, representing an effective rate of 43% on the benefit, despite being in the 31% tax bracket. The article suggests that employees who drive fewer kilometers or already own a second car might find it more financially sensible to decline the company car and opt for a cash equivalent, especially if they are in a higher tax bracket.