Tax Brackets Explained: How Salary Increases and Multiple Jobs Affect Net Pay
Translated & summarized from Bizportal by baba
Israeli tax law calculates income tax progressively, meaning higher rates apply only to income within specific brackets, not the entire salary. Individuals with multiple jobs often overpay taxes due to high withholding rates from secondary employers, which can be corrected through tax coordination (תיאום מס). Recent changes in 2026 expanded tax brackets, potentially lowering tax burdens for some earners. Tax credits further reduce an individual's tax liability based on personal circumstances.
The story in 5 lines · by baba
- Israeli income tax is progressive, with higher rates applying only to income within specific brackets.
- Multiple employers often lead to over-taxation without tax coordination (תיאום מס).
- Tax coordination (תיאום מס) corrects withholding rates to match actual tax liability.
- 2026 tax brackets were expanded, affecting income taxed at 20% and 31%.
- Tax credits (נקודות זיכוי) further reduce an individual's tax burden based on personal factors.
A common misconception about income tax in Israel is that crossing into a higher tax bracket increases the tax rate on an entire salary. In reality, tax is calculated progressively, with each rate applying only to the portion of income within that specific bracket. For instance, an individual earning NIS 18,000 monthly and receiving a NIS 2,000 raise to NIS 20,000 would pay 20% on the first NIS 1,000 of the raise and 31% on the next NIS 1,000. This results in an additional NIS 510 in tax, leaving a net increase of approximately NIS 1,490 before other deductions.
The tax situation becomes more complex for individuals with multiple employers. If an employee works two jobs, their total income is assessed for tax purposes. Without tax coordination (תיאום מס), the second employer often deducts the maximum tax rate of 47% on income from that job. This can lead to significantly overpaying taxes, as the actual tax liability on that portion of income might fall into a lower bracket. For example, someone earning NIS 12,000 from a primary job and NIS 4,000 from a second job might have 47% deducted from the second job's income, totaling NIS 1,880, when their actual tax liability on that amount is closer to NIS 800 because it falls within the 20% bracket.
Tax coordination (תיאום מס) is a mechanism designed to rectify these discrepancies during the tax year. By submitting details of employers and estimated annual income to the Tax Authority, individuals receive approvals that specify the correct deduction rate for each employer. This process ensures that taxes are withheld more accurately throughout the year, preventing large overpayments that would otherwise require a tax refund request at the end of the year. The Tax Authority's online system facilitates this process, though individuals with more complex income structures or those preferring a paper-based approach can use alternative methods.
Recent changes in tax brackets for 2026 have expanded the income thresholds for the 20% and 31% tax rates. The 20% bracket now extends up to a taxable income of NIS 19,000 per month, and the 31% bracket covers income between NIS 19,001 and NIS 25,100. These adjustments aim to provide some tax relief, particularly for those whose income has risen. It is crucial for individuals to update their tax coordination if they have already filed it, to reflect these new bracket changes and ensure accurate withholding.
Beyond income tax, tax credits (נקודות זיכוי) further reduce an individual's tax liability. These credits are calculated based on personal circumstances, such as gender, number of children, military service, and academic degrees. Each credit point translates to a monthly reduction in tax owed. For instance, a single man with 2.25 credit points would have a monthly tax of approximately NIS 2,680 on an income of NIS 20,000, which is about 13% of his salary, even before considering additional credits.
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