Taxes

Are you a salaried employee or self-employed ?

Moshe

Are you a salaried employee or self-employed ?

There is a huge difference ! Not only in the benefits you are entitled to, but in regard to your responsibilities. No, I am not talking about your social benefits or your salary. I am talking about Social Security (or Bituach Leumi as it is known in Israel). Before you say that of course you know what your status is, I suggest you read this post through to the end. It may have some eye-opening surprises for you that can have serious impact on you, financially.

Many people own companies or are suppliers of services as self-employed. There are people who work legitimately as salaried employees, and some do a little of both.
Others have start-ups they run from home: anything from selling things, to doing work over the computer, whether it be building internet sites or translating work, or whatever.  It is this last group that this post is targeting.

First, it is important to understand that while both self-employed and salaried employees pay Social Security, the rates are different and so is the coverage for various stipends as well as the base amounts for the stipends.

If you are considered by Bituach Leumi to be self-employed, but you are reported on a company’s payroll (not a placement or manpower agency), that fact does not make you a salaried employee. What counts is your actual status. Bituach Leumi, by law, can change a person’s status one-sidedly and even retroactively ! As a result of such a change they can demand back payment at the rates that existed for self-employed persons ! If you received in the past, during the said changed period, a stipend from Bituach Leumi, your eligibility for that stipend may be re-evaluated and even disallowed.

Recently, a verdict was released by the labor court in a case of “stage and communication ltd” and others vs. Bituach Leumi (case # 5062/06). Bituach Leumi one-sidedly changed the status of certain “employees” in the company. The company and the employees filed suit in labor court contesting the change.
The court, asked the simple basic question “did employee-employer relations exist between certain employees who were on the company’s payroll as salaried employees and reported as such ?”. The verdict explicitly stated that there were no such relations and these “employees” should have been reported as self-employed for all purposes.

The Judge stated in his verdict the following: “The model of employment, which all of the plaintiff companies involved in the suit, used was in actuality a front. These companies only designation was to relieve self-employed people from the burden of managing their affairs with the tax authorities and the defendant (Bituach Leumi). There is no relationship or connection between the plaintiff companies and the services the employees, who were reported as salaried workers, provided to the recipients of the services. The only reason the employees were on payroll as salaried employees was to avoid having to manage their affairs with the authorities.”

This is a precedent setting, important verdict, the first of it’s kind, in a very lengthy case.

This is how you can check yourself to see if you qualify as a salaried employee or as a self-employed person

Answer the following questions truthfully. If your answer to any of these questions is negative, this very well could mean that you are self-employed:

1. Is there someone who arranges your schedule at work ?

2. Is there someone at work who assigns or re-assigns you to a project/position ?

3. Is there someone at work who has the power and authority to fire you and terminate your job ?

4, Is there someone at work that you need to request vacation leave from ? Or to notify regarding tardiness, sick days, reserve army duty, etc  ?

5. Is there anyone at work who supervises your work and you report to as a superior ?

6. Is there any type of time-sheet reporting and follow-up for your work hours and days ?

and if your answer to any of these questions is positive this very well could mean that you are self-employed:

7. Do you decide which clients/ jobs to accept and which to reject ?

8. Do you negotiate with clients the price they will pay or determine the cost for jobs ?

9. Are your wages implemented by sharp up and down changes due to the cash inflow that you receive from third parties ? And as a result is it difficult to point out your monthly base pay ?

10. Is payment of your wages delayed until the amount is received in full from a third party ? (not paid on a set date)

If the answer to these questions is negative, chances are you are not eligible to be a salaried employee. You need to register as a self-employed individual at your local Bituach Leumi office in order to ensure your rights. Don’t wait for them to rescind your salaried employee’s rights retroactively. More information can be found on Bituach Leumi’s website:  www.btl.gov.il

This is not something to be taken lightly !

In work contracts for “net pay” who gets the new “family net” benefits, employer or employee ?

Moshe

The “family net” plan, or Kachlon law (named after the Finance Minister Moshe Kachlon) which recently went into effect retroactively from January 2017 added tax credit points for parents of children under 5 and made equal the tax credit points for those children given to men and women. The law will be in effect for the tax years 2017 and 2018 only, unless the knesset decides to add in additional years. If not, the tax credits will return to present state in Jan 2019. Everyone knows that employees with regular gross salaries will receive a larger net pay as a result of this law. But what happens when an employee’s work agreement lists his salary as net ? In general, changes that occur to the tax brackets in a net pay salary will lower the employer’s expense by lowering the gross pay and as a result the taxes, while the employee’s net pay remains unchanged.
In general it seems that this is acceptable practice. But in cases where substantial tax benefits are given to employees, such as the 2001 Negev residents tax benefit, the lawmakers intent was to give this benefit to the employees and not to employers of Negev residents. the same would apply here regarding the Kachlon law. A recalculation of the new net pay would need to be done by using the gross pay, pre change and after adding the change configuring the new net pay.

The above is not legal advice nor is it a replacement for seeking such legal advice. It is the professional opinion of the author based on a labor court decision regarding net pay and tax benefits.

Tax credit point update (Kachlon law) June 2017

Moshe

The Israel Tax Authority published a new directive to employers on May 28, 2017 regarding tax credit points to parents of children who are salaried employees via their payslip.
1. The number of tax credit points will now be equal for men and women. All parents are now eligible for 1.5 tax credit points in the year their child is born and 2.5 tax credit points in the years the child is age 1 to age 5.
2. This directive is effective for the tax years 2017 and 2018 only (from Jan 2019 it is cancelled, unless an extension is approved by the government).
3. Effective in June 2017 salary (to be paid by July 9, 2107), employers will credit their employees to whom this applies with the additional tax credit points, retroactive to January 2017.
For women: In the year the child is born you will receive 1.5 tax credit points (instead of 0.5 up until now) and in the years the child’s age is 1-5 you will get 2.5 tax credit points (instead of 2 up until now). You can elect to defer 1 tax credit point of the 1.5 allotted for each child to the following tax year (2018). This is done by filling out a 116 D tax form and giving it to your employer (HR or salary dept). You will need to also fill out this form in 2018 (section dalet).
Men do not have this option of deferring tax credit points.
For men: In the year the child is born you will receive 1.5 tax credit points (instead of 1 up until now). In the years the child’s age is 1-2 you will receive 2.5 tax credit points (instead of 2 up until now) and in the year the child’s age is 3 you will receive 2.5 tax credit points (instead of 1 up until now) and in the years the child’s age is 4-5 you will receive 2.5 tax credit points (instead of none up until now).
This will lower taxes on working parents salaries and raise their net pay. The tax credit points are monthly.
Employers: you need to keep this form 116 D with the employee’s 101 tax form.

Employee’s Rights Handbook

Moshe

The “Employee’s Rights Handbook”

The first comprehensive, English language guide to Israeli payroll.
Whether  you are an employer or an employee, a new oleh or an English speaker who has trouble with the Hebrew terms, this publication is for you!

 

Employees:

Understand the terminology, layout and the Hebrew terms on your payslip

Know your rights

Understand the labor laws

What mandatory things need to be itemized on the payslip?

What are the things you need to know upon termination?

How many vacation days are you entitled to?

Is Purim a paid holiday?

What are the rights of a pregnant employee?

 

Employers:

Do your payslips comply with all the new regulations?

Do you issue employees “notification of terms of employment” as required?

Are employees given a fair hearing prior to termination?

Understand what obligatory payments exist in Israel

What is allowed to be deducted from an employee’s salary?

Is an employee who is on maternity leave allowed to work from home?

Must I pay travel expenses to all employees?

What can and cannot be deducted from an employer’s salary?

Are you aware of penalties for infringement on regulations and labor laws? (avoid this by knowing what needs to be done)

 

In this guide you will find:
* An overview of labor laws, regulations, expanded regulation orders, collective
agreements and statutes

* The make-up of the Israeli payslip

* Social Security

* Health Insurance
* Income tax

* Holiday pay, sick day payment, vacation, overtime payment, bereavement leave,
maternity leave

* Minimum wage

* Youth employment
* Advance notice

  • Tips             And much more!

 

A must for employers and employees alike. Get your copy today! This 107 page publication in hard-copy is not available in stores OR Anywhere else, get your copy today !

Price: 100 sh

For orders please go to: Order Here and fill out your details. You will receive an E-invoice for payment after which your book will be mailed to you. Self pickup is available in Jerusalem: Please state if you are interested in this option.Employee's Rights Handbook

Tax benefits for 2015 for industry shift work and residence in national preference areas extended

Moshe

The tax benefits awarded to salaried employees who work shifts in the manufacturing industry, as well as the credit for living in certain areas defined as national preference have been extended from June 30, 2015 until the end of the tax year, December 31, 2015.

 

Is an employer required to give holiday gifts to his employees ?

Moshe

There is no directive or law that makes holiday gifts to employees mandatory. It is however, a nice gesture and one usually well appreciated by employees. The right of employees to a holiday gift may be embedded in an individual work contract or a collective work agreement, an expanded regulation order based on a collective agreement or common practice in the past in the place of work. In any of these cases, the employer would be bound to the agreement.
In the public sector, this is specified in the collective work agreement.

If an employer does give employees holiday gifts, with regard to eligibility of employees who are currently on non-paid leave, maternity leave, etc, if it is common practice at the palce of work, it is the employer’s discretion whether to give employees currently not receiving pay or not and how much.

Some employers give permanant employees one gift and a lesser gift to part-time or temp employees.

With regard to taxes; section 2 (2) of the Income Tax Order specifies that “any benefit given to an employee by an employer, whether money or value of money (coupons, actual gifts), whether directly given or indirectly given, are considered taxable income”. The result is that gifts, or their actual worth, are taxable  (income tax, social security and health tax) and they need to be separately itemized on the payslip. Most employers will pick up the tab on the taxes (although it is not mandatory), as it’s not the employee’s fault that the employer decides to give him a gift. That basically means that if the employer gives say 350 sh in coupons, he would add a separate item on the payslip for 350 sh net, the taxes would be deducted but the employee’s net pay would not be efeected due to the gift.

gift

Announcing the release date for Employee’s Rights Handbook !!!!

Moshe

Finally, the long awaited Employee’s Rights Book is to be released in Hard copy. The release date is Sunday March 15, 2015

At present, this is the only format. There may be a PDF purchase option at a later date.

The book is 107 pages of vital information for employers, employees and anyone interested in Employee’s rights, labor laws and the makeup of payroll in Israel.

Announcing the first and only English language guide in simple easy to understand language !!!

The Book also contains a dictionary of common Hebrew payroll terms and their English translation, examples of payroll forms, useful contact information, tips and more.

Get your copy today,  and know your rights !

price: 100 sh (including mailing). Optional self-pickup in Jerusalem (85 sh).
Payment via credit card or paypal, use this link:

<a href=”http://www.vcita.com/v/israpay/make_payment?pay_for=Employee’s%20Rights%20Handbook&amount=100″ target=”blank”>pay</a>

or follow the schedule an appointment on the left hand side of the home page of this site.
If you encounter a scheduling error notice, send the following details:
(Name, mailing address, email address, phone/cell number. If you wish that the invoice be made out to a different name than the one you supplied, please state)
to moshe.israpay@gmail.com and An invoice will be emailed to you. When you open the invoice you will have the ability to pay.

Check payments option:  send a check made payable to Moshe Egel-Tal along with the above info to

Israpay
P.O. Box 44429
Jerusalem 9144302

 

 

 

 

Tax break package for new immigrants and returning residents

Moshe

The main benefits for new immigrants and returning residents who became citizens since January 1st 2007 and onwards are as follows:

 10 years exemption from tax paying on foreign-source income (i.e., income derived outside of Israel).

 10 years exemption from declaring on foreign-source income which are exempted.

 10 years exclusion from definition as an Israeli company resident – for a company established abroad and owned by an “Oleh” or a “Senior Returning Resident”.

 Option to be considered a foreign resident for taxation purposes, for one year from arrival.

 3.5 years of entitlement to tax credit, with options of extension.

Who is entitled to the tax benefits?

 “Oleh” – New immigrant.

 “Senior Returning Resident” – Individuals who returned to Israel after they lived continuously outside of Israel, and returned to Israel not sooner than 10 years after having ceased to be a resident of Israel. Those individuals will be considered as “Oleh”.

 One-time measure – Individuals who returned to Israel during the years 2007– 2009 are considered as “Senior Returning Resident” even if lived continuously outside of Israel for at least 5 years (instead of 10 years).

Income entitled to tax benefits:

 Passive income – 10 year exemption on dividends, interest, rent, royalties and pensions generated by assets held overseas.

 Capital gain – 10 year exemption on capital gain from the alienation of assets located abroad. Extended to assets located abroad acquired after becoming Israeli resident.

 Business income – 10 year exemption on business income generated by assets held overseas.

 Vocational and labor income – 10 year exemption on salaries and income from activities of independent nature, generated abroad. Applies to business and occupation acquired or started before or after becoming an Israeli resident. Optional track for adapting: A one-year period of adjustment from the date of arrival in Israel is granted upon request, which enables the individual to choose not to be considered as an Israeli resident for tax purposes during this one-year period.
The request for the adjustment year must be submitted within 90 days from the date of arrival in Israel.

Foreign companies held and owned by “Olim” and Senior returning residents: A company established abroad and owned by an “Oleh” or a “Senior Returning Resident”, will not be considered as an Israeli company for taxation purposes for a period of 10 years, and thus will be exempt from taxes in Israel during this period on foreignsource income (i.e., income derived outside of Israel).

Tax credits: All Israeli residents are entitled to 2 credit points (reduction of NIS 436 per month from the tax liability), as well as 0.25 additional points for a working man and 0.75 points for a working woman, which are not taxed.

Working Olim (salaried employees- ME) are entitled to additional points on top of that, for a period of three and a half years following their Aliyah. This benefit may be extended whilst carrying out compulsory army service and whilst studying at university or college. Apply for this benefit by filling out the relevant sections of form 101 (filled out upon start of employment and at the beginning of every year through your employer) and attaching a photocopy of your teudat oleh to the 101 form. the extra tax credit points for olim are as follows:

 For the first 18 months – 4.5 additional credit points (reduction of NIS 654 per month or NIS 11,772 for the first 18 months)

 For the following 12 months – 2 additional credit points (reduction of NIS 436 per month or 5232 annually)

 For the following 12 months – 1 additional credit points (reduction of NIS 218 per month or NIS 2616 annually) Additional reductions are available for parents of young children, working mothers, discharged soldiers and many other reasons

New tax Brackets for 2015

Moshe

The new tax brackets for 2015

Bracket                      Gross pay               Accumulated tax
Ceiling for 10%          5,270                               527
Ceiling for 14%          9,000                            1,049
Ceiling for 21%         13,990                           2,097
Ceiling for 31%         19,980                           3,954
Ceiling for 34%         41,790                         11,369
Ceiling for 48%         67,560                         23,739
Every additional shekel 50%

New info on Tax reconciliation

Moshe

bankrupt cartoon

 

The Israel Tax Authority has updated their website for citizens who want to apply for a tax reconciliation due to several simultaneous sources of income as a salaried employee. In the past, applying on line may have saved the time of physically going in to your local tax authorityoffice and waiting on line, but you still had to wait two weeks for the official documents to be sent to you via snail-mail. So, the first improvement of this process is an immediate procurment of the documents and the ability to immediately print them directly from the site !

In addition, every application recieves a serial number that can be accessed from any computer with internet capability to print extra copies at will.

The 3rd upgrade is that in the past, this was limited to a combined gross salary ceiling (from all sources) of 188,712 sh, this amount was updated to 436,272 sh !

And last, but not least, in the past you were allowed 3 tries, if you input mistaken information via the site, now that has been doubled to 6 tries, three and another three tries after 24 hours have past from the first three tries.

Save the time and do your tax reconciliation on your own time and in the comfort of your home ! No lines and no waiting !

Highly recommended

 

https://www.misim.gov.il/shteumeimas/frmPreMain.aspx

 

2014 tax update for salaried employees

Moshe

1. The tax brackets that were in effect since Jan 2013 will remain in effect in 2014, unchanged.

10%        up to 5,280 sh

14%        from 5,281 sh –  9,010 sh

21%       from 9,011 sh –  14,000 sh

31%       from 14,001 sh – 20,000 sh

34%      from 20,001 sh –  41,830 sh

48%      from 41,831 sh –   67,630 sh

50%  each additional sh.

 

2. The value of tax credit points remains unchanged at 218 sh.

3. The following tax amounts have been updated from Jan 2014:
A.  Ceiling for employer’s contribution toward pension – 36,356 sh per month.
B. Expense for foreign expert – 330 sh per day.
C. Salary for foreign expert – 13,100 sh per month.
D. Ceiling for linked to consumer index only loans to employees  – 7,800 sh. (any loan above this amount carries a mandatory interest rate of 4.31%
(+ v.a.t. where applicable).
E. Value added to taxable income for cell phone usage – 105 sh.
F. Ceiling for employer’s contribution toward Keren Hishtalmut – 15,712 sh per month.
G. Tax benefit for shift work:  Ceiling – 10,710 sh.  Tax credit 15% – up to 940 sh anually.
H. Ceiling for tax exemption from severance pay – 12,360 sh per year for amounts paid from 1.1.2014 onwards.
I. Income credits for deposits to Gemel/ Pension plan savings:  section 45 – 169 sh per month, section 47 – 8,700 sh per month.
J. Value added to taxable income for company/leasing car (per month):
group 1  – 2,730 sh
group 2 – 2,960 sh
group 3 – 3,810 sh
group 4 – 4,570 sh
group 5 – 6,330 sh
group 6 – 8,200 sh
group 7 – 10,550 sh
L3 motorcycle (engine capacity over 125 cc and over 33 hp) – 910 sh

For cars first registered from Jan 1, 2010 onwards (linear module), the ceiling for list prices is 506,580 sh and the deduction for Hybrid cars is 560 sh.
K.  Update for extra tax credit points for higher education (starting in Jan 2015):
Anyone completing an academic BA during 2014-2015, will be eligible for 1 additional tax credit point per month in the following tax year or the year after
(employee’s choice) .
Anyone completing an academic MBA during 2014-2015, will be eligible for 1/2 additional tax credit point per month in the following tax year or the year after
(employee’s choice) .
In fields where an apprenticeship is required, the employee can defer receipt of the additional tax credit point (or half point) to the tax year following the end of
apprenticeship.
Anyone completing an academic Phd in medicine or direct track, during 2014-2015, will be eligible for 1 additional tax credit point per month in the following
tax year or the year after  (employee’s choice), and another 1/2 additional tax credit point per month in the year following.

In 2014, all employees claiming additional tax credit points for academic studies, must fill out the appropriate boxes on the 101 from, attach a tax form 119 and all required documents.

L. Tax discounts for settlements / border areas:   Ceiling for section 11 (Kiryat Shmona, Eilat and confrontation line settlements – 241,320 sh annually.
Ceiling for residents of other communities as defined in section 11 B of the first section   – 160,800 sh annually.

The validity of tax benefits to the southern confrontation line residents (Sderot and the western Negev) has been extended until Dec 31, 2014.

The following communities have been removed from the list of eligible places, effective 23.02.2014: Eilot regional council, Bet Shean, Hazor Haglilit, Arava
Tichona regional council. This section is not final and may be subject to change.

The tax discounts for settlements have changed from Jan 2014:

section 1 (north settlements) –  11% (in 2013 was 12%)
section 2 (Kiryat Shmona) – 22% (in 2013 was 24%)
section 3 A – (Mitzpeh Ramon)  – 22% (in 2013 was 24%)
section 3B (Dimona and Yerucham) – 18% (in 2013 was 19%)
section 3C – 14% (in 2013 was 15%)
section 3D & 3E – 11% (in 2013 was 12%)

Employees who work at more than one place of employment and received a tax co-ordination, need to reapply before Feb 28, 2014, otherwise employers have been instructed to deduct maximum tax (currently 48%)!

Negative Income Tax – 2012 stipend

Moshe

This week is the last week to file for a 2012 tax year negative tax stipend !

Hurry before it’s too late and check your eligibility today ! Dec 28th 2013 is the last day to file !

Here is a link to the simulator, on the Israel Tax Authority’s site: https://www.misim.gov.il/shmhshlili

The following are the basic criteria for eligibility:

1.  Age 23 and up with children (up to age 19) or age 55 and up with no children

2.  Aside from living quarters you (or your immediate family) do not own any other property.

3. If you have 1 or 2 children or if you are 55 yrs or older w/o children –  Total annual income as a salaried employee or as self-employed in 2012 divided by the number
    of  dependants in your care:  between 2,051 sh – 6,109 sh
    or if you have 3 children or more – between 2,051 sh and 6,717 sh