Israel Eyes Tax Hike on Tech Workers' Stock Options
Translated & summarized from Mako by baba
Israel's Ministry of Finance and Tax Authority are proposing significant tax changes for high-tech employees, requiring them to exercise stock options sooner or pay a higher tax rate. The reform aims to generate an additional 2 billion shekels annually for the state. High earners will see a tax reduction, while those delaying share sales could face a 30% tax. The changes are part of broader fiscal planning for 2027.
The story in 5 lines · by baba
- Israel's Ministry of Finance is proposing higher taxes on tech workers' stock options if not exercised promptly.
- The reform aims to generate an additional 2 billion shekels annually for the state.
- Employees earning over 30,000 shekels monthly will benefit from a tax bracket adjustment.
- The proposed tax on delayed stock option sales would increase from 25% to 30%.
- The changes are being considered for inclusion in the 2027 state budget and Arrangements Law.
A special team from Israel's Ministry of Finance and Tax Authority is formulating legislative changes that would require high-tech employees to exercise their stock options immediately upon vesting or face higher taxes later. The proposed reform, dubbed the "Trapped Profits Reform," aims to encourage faster exercise of options, thereby increasing state revenue. The Ministry of Finance anticipates this measure could generate an additional 2 billion shekels annually.
Under the current law, employees can defer taxes on stock options, paying a reduced rate of 25% when they eventually sell the shares. The proposed change would increase this tax rate to 30% for those who delay selling their shares beyond the vesting period. This is intended to address what officials view as an "distortion" where employees hold onto shares for years, sometimes long after leaving a company, and still benefit from the lower tax rate upon eventual sale.
Conversely, employees earning over 30,000-35,000 shekels per month, who currently pay a 35% income tax rate, would see a benefit. They would experience a tax bracket adjustment, leading to a reduction in their income tax and an estimated monthly increase of approximately 1,000 shekels to their net pay. The two proposals are linked, as the group benefiting from the tax bracket adjustment is seen as overlapping with those affected by the increased option tax.
Discussions are also underway regarding a temporary order that would allow individuals who have already passed their vesting period to exercise their shares at the current 25% rate, preventing them from being subject to the new 30% rate retroactively. In 2024, approximately 6,700 individuals exercised options on shares worth over one million shekels, generating about 43 billion shekels in revenue, from which the state collected around 10 billion shekels in taxes. The reform is being considered in the context of the upcoming state budget and the 2027 "Arrangements Law."
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