How Israeli Workers Can Avoid 47% Tax Deduction on Second Income Source

In Israel, individuals earning income from two sources without coordinating tax deductions face a maximum 47% tax rate on their second income, losing out on tax credits and lower tax brackets until they file for a refund the following year. Each employer or payer calculates tax assuming they are the sole source of income, causing the second payer to withhold tax at the highest rate without applying personal tax credits or graduated rates. This results in hundreds of shekels withheld excessively each month.

Tax coordination (te'um mas) aligns tax deductions with total income and applicable credits, preventing over-deduction. In 2026, a tax credit point is worth 242 shekels monthly, and every Israeli resident automatically receives 2.25 points (2.75 for women), reducing monthly tax by about 544.50 shekels. Tax brackets for 2026 start at 10% for monthly income up to 7,010 shekels, rising progressively to 47% for income above 46,691 shekels. Recent bracket expansions benefit middle-income earners.

Tax coordination is done online via the Israel Tax Authority’s system, through employers or tax representatives, and must be renewed annually. Failure to coordinate results in excess tax withholding, which can be reclaimed by filing a refund claim for up to six years retroactively. Coordination is necessary for anyone with multiple taxable income sources, including multiple pensions, salaries, or National Insurance payments like unemployment benefits.

The article emphasizes that tax coordination prevents upfront overpayment, while tax refunds recover excess tax after the fact. Workers changing jobs mid-year or receiving multiple pensions should coordinate to ensure correct tax treatment. The maximum marginal tax rate is 47%, with an additional surtax on very high annual incomes above approximately 721,560 shekels.