Israel Expands 20% and 31% Income Tax Brackets for 2026, Benefiting Mid-Income Earners

For the 2026 tax year, Israel has expanded the 20% income tax bracket from a monthly salary of 16,150 shekels to 19,000 shekels, and the 31% bracket now applies to incomes from 19,001 to 25,100 shekels, up from the previous cap of 22,440 shekels. This adjustment, separate from the frozen indexation law of 2025-2027, effectively lowers the tax burden for hundreds of thousands of salaried workers by keeping more income taxed at lower rates.

The new monthly tax brackets for 2026 are: 10% up to 7,010 shekels, 14% from 7,011 to 10,060, 20% from 10,061 to 19,000, 31% from 19,001 to 25,100, 35% from 25,101 to 46,690, and 47% from 46,691 to 60,130 shekels. Additional surtaxes apply on annual incomes exceeding 721,560 shekels. For example, a worker earning 15,000 shekels monthly pays about 2,116 shekels in income tax before credits, an effective rate of 14.1%. Tax credits, such as the basic credit worth 242 shekels per month, can reduce this significantly.

The tax relief peaks at a monthly income of 25,100 shekels, where the maximum monthly saving reaches approximately 420 shekels, or about 5,040 shekels annually. This benefit plateaus for higher earners, including those making 40,000 or 60,000 shekels monthly, as the expanded brackets are fully utilized. Lower earners below 16,000 shekels see no change since their income remains within unchanged brackets.

The article also details how social security and health insurance contributions are deducted separately, with rates increasing above certain income thresholds. Pension contributions, typically at least 6% of insured salary, are deducted but remain the employee's assets. The piece emphasizes the importance of annual tax reconciliation using Form 106 to account for changes in tax credits, multiple income sources, and other factors that affect final tax liability and potential refunds.

This tax bracket expansion primarily benefits middle-income earners by shifting income from higher to lower tax rates, improving net salaries for many Israelis in the 16,000 to 25,000 shekel range monthly.