Company Cars Cost Employees Thousands More Than Expected Due to Taxes

Employees receiving a company car in Israel may face significantly higher tax burdens than anticipated, as the Israeli Tax Authority treats the vehicle as taxable income. This "benefit value" is added to an employee's salary and taxed like wages, impacting income tax, national insurance, and health insurance contributions.

The calculation for cars registered from January 1, 2010, uses a linear model: 2.48% of the car's original list price when new, rounded to the nearest ten shekels. Crucially, the Tax Authority uses the full list price, even if the employer received a discount, and the price does not depreciate over time. For 2026, the list price is capped at 596,860 shekels. Reductions are available for advanced propulsion vehicles: 560 shekels for hybrids, 1,130 for plug-in hybrids, and 1,350 for full electric vehicles monthly. A proposed reform to further incentivize electric cars was recently shelved.

The most significant factor affecting the final cost is the employee's marginal tax bracket. Two employees receiving the exact same car, with an imputed benefit value of 3,000 shekels, can experience vastly different net costs. An employee in the 20% tax bracket might pay around 600 shekels monthly in income tax, while another in the 47% bracket could pay approximately 1,410 shekels for the same benefit.

When national insurance and health insurance (12.17% on income above 7,703 shekels up to 51,910 shekels) are added, the effective tax rate can exceed the stated marginal bracket. For instance, an employee earning 20,000 shekels gross with a car valued at 180,000 shekels, facing a 4,460 shekel benefit value, might pay about 1,925 shekels net monthly, an effective rate of 43% despite being in the 31% bracket.

This tax structure means the benefit may not be worthwhile for all employees. Those who drive fewer kilometers annually pay the same tax as high-mileage drivers. Employees with a second car at home might find the company car's tax burden outweighs its advantages. In such cases, accepting a cash equivalent for the car might be more financially logical. To assess the best option, employees should consider the precise benefit value, the net reduction in their pay based on their tax bracket, and the potential gross salary increase offered instead of the car.