Tax Guide: How Employees and Self-Employed Can Maximize Refunds Before Year-End

As the 2026 tax year approaches its close in December, Israeli tax authorities are urging both employees and the self-employed to finalize their financial affairs to ensure they claim all eligible deductions and credits. Proactive planning can lead to significant tax savings and refunds.

Self-employed individuals can reduce their tax burden by making pension contributions. Contributions up to NIS 38,412 to a pension fund in 2026 are eligible for deductions, potentially saving up to NIS 16,000 in taxes, depending on the individual's tax bracket. Contributions to an "investment fund" (קרן השתלמות) of up to NIS 13,203 are also deductible if made by December 31st. Business owners reporting on a cash basis can also benefit by prepaying expenses before year-end to lower their taxable income, while those on an accrual basis may not see the same benefit for certain prepayments.

Employees should review their pay stubs to ensure their employers are making pension contributions on all forms of compensation, including bonuses and overtime. Any "uninsured salary" (שכר לא מבוטח) can be contributed to by the employee, potentially yielding a tax refund of about 35% on the deposited amount. Additionally, reservists who served at least 30 days in the preceding year are eligible for tax credits of up to NIS 11,616. Individuals who changed jobs, worked multiple jobs without tax coordination, completed a degree, had a child, or were unemployed during the year may also be eligible for refunds by filing a tax return, with claims possible for up to six years retroactively.

Individuals with a secondary income stream from self-employment can open a second investment fund, separate from their employer-sponsored one, with contributions up to NIS 13,203 deductible. Donors to public institutions with approved status can claim a 35% tax credit on donations exceeding NIS 207 annually, provided the institution reports the donation through the Tax Authority's "Donations Israel" system. Investors can also realize capital losses on securities before year-end to offset capital gains or even property taxes from real estate sales, with the option to repurchase the securities immediately after.

Finally, a new temporary order offers tax exemptions on earned income for individuals becoming Israeli residents between November 5, 2025, and December 31, 2026. This benefit, aimed at returning residents who lived abroad for at least ten consecutive years, provides exemptions on earned income up to NIS 3.1 million cumulatively between 2026 and 2030, with specific annual limits. Certified Public Accountant Yoram Shifer advises acting promptly, stating, "When the business year is still 'open,' one can estimate income, prepay or defer expenses, and maximize contributions. The window of opportunity is closing, and all that remains is to chase forms and hope they are processed on time."