Israeli Tax Authority Begins Retroactive Tax Benefits for West Bank Settlements from January 2026

The Israeli Tax Authority has officially started implementing tax benefits for residents of dozens of settlements in the West Bank's eastern conflict line area, effective retroactively from January 1, 2026. The finalized guidelines and list of eligible settlements were published on Thursday, marking the practical application of the new law.

According to the guidelines, residents of the approved settlements will receive a 7% income tax credit on personal earned income, up to a taxable income ceiling of 146,640 shekels annually. This benefit applies only to income derived from personal labor and is contingent on meeting the conditions outlined in Section 11 of the Income Tax Ordinance.

To claim the benefit, residents must complete a designated form, provide supporting documentation, and submit these to their local authority. Upon approval, they must submit a signed residency declaration to their employer to have the benefit reflected in their pay slips. Concurrently, the Tax Authority has instructed all employers to update payroll software to comply with the new law.

Employers who have over-deducted taxes since the start of 2026 are authorized to refund employees and, if necessary, adjust tax reports or offset amounts in future filings during the year. The final list of eligible settlements includes numerous communities such as Beit El, Ofra, Eli, Kedumim, Karnei Shomron, Alon Moreh, Yitzhar, Shiloh, Neve Tzuf, Dolev, Talmon, Nahliel, Nili, Na'aleh, Bruchin, Revava, Rehalim, Itamar, Shavei Shomron, Sha-Nur, Tekoa, Emmanuel, Kochav HaShahar, Kochav Yaakov, Psagot, Ma'ale Mikhmas, Ma'ale Levona, Karmi Tzur, Hermesh, Bracha, Yakir, Eli Zahav, Nofim, Atarot, and others as listed by the Tax Authority.