e-Book: 2013 Tax Benefits for Salaried Employees in Israel


Finally released via Amazon kindle – The 2013 updated version of the Tax Benefits for Salaried Employees in Israel, in English !

Just in time for the end of the tax year, find out if you have correctly utilized all the tax benefits you are entitled to, as a salaried employee.

If your employer failed to credit you or you were not aware of certain tax benefits that you qualify for, no worries !

Taxes are configured annually, so if you update your employer before December’s payroll is processed you will be credited retroactively to January 2013.

And if you weren’t able to update your employer’s payroll dept by Dec’s payroll, just file for a tax rebate.

Get your copy today !

 

Tax Authority adds more hours in the afternoon to customer service

The Israeli Tax Authority released a memorandum to the public on March 10th, 2013 regarding the hours in the afternoon/evening that the tax reconciliation department is open to the public. The memorandum can be found in Hebrew on the Tax Authority’s website: www.taxes.gov.il

In an effort to better serve the public in a more efficient manner, The Tax offices in Jerusalem 3, Tel-Aviv 5, Be’er Sheva and Haifa will be open on Sundays from 3 p.m. until 6 p.m. on a trial basis up until (and including) April 14th, 2013.
After which it will be determined whether to continue this service and to what extent.

The service is meant for anyone who wishes to procure a new tax reconciliation for more than one employer for 2013 and those who wish to file for a tax rebate for previous years.

 

 

 

Employers: Do you have issues with employees incorrectly filling out 101 forms ?

According to income tax regulation 2: “all employees are required to fill out an employee card (101 tax form) at the start of employment with a new employer and on the 1st of January of each subsequent year. The form includes: the employee’s personal information and sources of income. In addition, the employee is required by law to report any change in the information supplied on the form, within a week of the change.” Responsibility for the accuracy of the information is the employee’s only. The employee signs at the end of the 101 form a statement stating that all the information is correct. Supplying incorrect information is a criminal offense. The 101 tax form has instructions, but they are not too explicit.  Employees who do not understand what or how to fill out the form should ask the payroll accountant for help. Veteran payroll accountants attach written instructions to employees along with the form, correctly knowing that any mistakes in filling out the forms will come back to them in the end and they will need to chase after employees to “get it right” or deduct maximum tax, which just causes extra work.

Most employers have issues with employees filling out their annual 101 tax form. In some instances they leave out important mandatory information, in other cases they forget to check the boxes regarding the type of payment they are receiving from the employer or whether they have any other source of income. These things, while correctable in most cases during the tax year, can be very problematic in that until they are rectified, they may incur a maximum tax deduction from the employee’s salary. There can even be serious repercussions, by way of unnecessary fines in the case of an audit by the tax authorities.

The employer in general, and the payroll accountant specifically need to ensure that the proper form is being used (it’s updated frequently and can be found under “forms” on the Tax Authority’s website: http://taxes.gov.il/Pages/TaxesFastForms.aspx

It is important to note that each time a tax form is updated, all previous versions become obsolete and invalid from that point on. Using an outdated form can also result in fine ! However, all computerized payroll systems have the option of printing out pre-printed 101 forms with both the employer’s info as well as the employee’s info as it appears in the program. This is actually a time-saver as it allows the employee to double-check and correct only when information is incorrect or has changed, check the relevant boxes and sign the form, instead of filling out the form from scratch. This usually takes only a few moments. The responsibility for updating the 101 form in the payroll program is the Program’s responsibility.

The employer is responsible for keeping these forms on file along with any letters from the tax authority regarding their employees tax credits, exemptions or reconciliations.

Good news !

The tax Authority has launched an initiative that will not only simplify the 101 tax form process, but it will ensure zero mistakes and do away with the need to get the forms to the employees and get them back in a timely manner, as well as eliminating the need to keep them on file, thus saving space and becoming environment friendly (no more paper) !

So how does this work ?

The tax Authority issued instructions for procuring an electronic 101 tax form which is available here:
http://taxes.gov.il/IncomeTax/Pages/IncoeTaxMeidaMaasikim.aspx
look for the item dated May 20, 2012 – there are two. the top one is the one you need (9 page document) and it includes the application form for the employer (pages 8 and 9)

 

As of Jan 2013, this is voluntary, but highly recommended. Keep reading…….

The employer needs to fill out a request to be included in the criteria for filling out electronic 101 forms and use the system. The request needs to be submitted to the Tax Authority not later than 2 months prior to the end of the tax year in order to use the system for the next year.

(Employers who wish to develop their own system for electronic 101 tax forms or companies who sell payroll programs, or the use of them to employers need to submit 4 months prior to the end of the tax year)

The process

After submitting the form, the employer will receive written approval from the Tax Authority  along with access codes to a secure site and instructions. In general, employees can access the secure site via a unique and personal password ensuring privacy. the employee will update all personal and income information. Any time there is a change in an employee’s information, the employee will log onto the secure site and repeat the process, changing the necessary information. All forms after finalization by the employee become locked PDF files and each update becomes a newer version. All versions are kept on-line and accessible to both the employer and the employee. In cases where employees do not complete the process, it will automatically incur maximum tax (currently 48%) on the employee’s annual salary.

 

The above information is taken from the Israel Tax Authority’s publications and is not a translation of those publications.

Disclaimer:  Israpay has done it’s best to explain this issue in easy to understand terms, however should any discrepancy be found between the information contained in this blog post and the Tax Authority’s referendums and notifications to employers, the latter will prevail. This information is intended as a service and is not legal advise in any way or form. It reflects the author’s opinion only and is not to be taken as more than general information and a friendly recommendation that may be worth checking out. There may be restraints, in the employer’s payroll program or otherwise, that currently will not enable the employer to currently implement use of the electronic 101 tax form.

 

New Tax brackets for 2013

2013 Tax Brackets


The value of each tax credit point has been updated to 218 sh.

These changes are effective from Jan 1, 2013 (January 2013 salary).

 

Tax Bracket

Gross pay

Tax

10%

5,280

528

14%

9,010

1,050

21%

14,000

2,098

31%

20,000

3,958

34%

41,830

11,380

48%

Each additional sh

 

 

Employers: Do you really need to file reports to the authorities on the 15th of each month ?

All employers know that their monthly payments and reporting to V.A.T., the Tax Authority & the National Insurance Institute (Social Security) (including payments deducted from payroll) need to be filed and paid by the 15th of each calendar month for the previous month.

But is this necessarily true ?

A recent notification to employers, by the Israel Tax Authority, dated December 10, 2012 states the following:

1. According to the wording of the V.A.T. law and the directives of the Income tax directives, periodic reports and payments must be filed by the 15th of each month, each report and payment according to the applicable laws regarding them.

2. As per the above laws it has not been determined that if the 15th of the month falls out on the weekly rest day of the person/entity who is required to file and pay, the date of payment is deferred to the next business day.

3. However, in order to facilitate the members of all religions in Israel, the management of the Israel Tax Authority has decided that if the 15th of the month falls out on the weekly rest day of the person/entity who is required to file and pay, according to his/her religion, reporting and payment will be delayed until the next business day after the aforementioned weekly rest day.

What does this mean ?

Usually, when the 15th of the month fell out on Shabbat or Holiday, people would pay the day before, so as to avoid possible interest charges on tardy reporting and payments. the above referendum makes it clear that the Tax Authority is aware and sensitive to the people and will allow reporting and payment after the 15th when the weekly rest day or a holiday falls out on the 15th of the month, without chancing extra charges for late filing/payment, thus easing pressure to finish up prior to the 15th.

The above referendum can be found on the Tax Authority’s website:

http://taxes.gov.il/IncomeTax/Pages/IncoeTaxMeidaMaasikim.aspx

(they recommend best results using internet explorer browser)

 

 

 

Bituach Leumi – Tax or benefit ?

Many Olim do not understand why they need to pay Bituach Leumi and Health Tax from their salary. “I pay my health tax to Kupat Cholim, so this is a double tax” or “I have health insurance from abroad – I don’t need it, so can’t I just tell my employer to cancel it and not deduct it from my pay ?” are just a few of the questions I am asked frequently.

Well, no,  you cannot just cancel it.   Let’s start at the beginning:  Before this started ( the mandatory health tax) in Jan 1995, people could choose not to be a member of a health fund (kupat cholim) and they weren’t insured. Each fund had it’s own criteria and could accept members, or not, according to their own criteria. These included past medical history, so for example, someone who had diabetes would not be able to choose which fund they wanted but were only accepted to Klalit.

The other thing was that each fund had different rates that were based on the member’s gross income. There were problems with this system too. If both husband and wife worked they paid more than if only one of them worked.
Let’s say that someone was wealthy, but was doing internship as a lawyer  and thus making minimum wage, they would pay the minimum where someone else who made a bit more than that and maybe wasn’t as wealthy might pay double what the wealthy intern was paying.

Many people would forge payslips in order to get reduced rates.

The Health Ministry by introducing the mandatory health law put all of this in the past. Everyone who has Israeli citizenship must have a health fund. You can choose any fund and they must accept you. Today this is done simply by filling out a form at your local post office with your teudat zehut.
The basic coverage is deducted from the salary and transferred by the employer to Bituach Leumi each month. Each fund has additional coverage packages that are optional and one needs to sign up via the fund directly. payment is between you and the fund and there is no connection to your employer or your payslip.

The problem is that these additions are not cheap, but without them you will not get very much insurance at all. The basic insurance covers only what is specified by the law. (the coverage is updated from time to time – usually when the state budget is passed in the knesset)

So, in a way- Yes it is a double tax. If you work you pay, if not, not. However it is mandatory and not optional. If both Husband and wife are working you’re both paying, if only one works, the other is exempt from payment, either way you get the same coverage.

Employees that are Foreign workers or receiving an old-age stipend from Bituach Leumi are exempt from paying the health tax via payroll. (As opposed to Kupat Cholim payments which are a type of Insurance and non-payroll related. – contact your local Kupat Cholim for rates, etc)

Bituach Leumi is Social Security. The months that you work ensure that you procure credit for them via the deductions from your salary.

You are buying coverage for the following:

  • old age stipend (Women from age 62 and men from age 67)
  • work-related accident
  • maternity leave
  • employer bankruptcy
  • loss of work ability stipend
  • unemployment
  • health insurance
Each of the above have specific criteria, who is eligible and under which circumstances (see Bituach leumi’s website for more information: http://www.btl.gov.il/English%20homepage/Pages/default.aspx)
Both employer and employee contribute towards the health tax and social security as a pro-rated percentage based on the total gross taxable salary.
The percentages differ between age groups (under 18, 18-62, 62-70, 70 +) as well as between foreign residents and Israeli citizens.
Anyone who is receiving an old-age stipend is exempt from both the health tax and social security.
There are two levels: The lower level is up to 5,171 sh gross (updated Jan 2012) and the percentages are listed as follows (lower rate listed first higher rate (over 5,171 sh and up to a ceiling of 41,850 sh monthly).
Age                                                              Social Security   Health tax Who pays
18 – retirement age 0.4 %  / 7 % 3.1 % / 5 % employee
18 – retirement age  3.45 % 5.9 % employer
up to age 18 or above retirement age and receiving old age stipend 0.38 % / 0.93 % exempt employer only
From retirement age – (but not receiving old age stipend) 0.27 % / 4.86 % 3.1 % / 5 % employee
From retirement age – (but not receiving old age stipend) 3.15% 5.38% employer
Above old age stipend age  (but not receiving old age stipend) exempt  3.1 % / 5 % employee
Above old age stipend age  (but not receiving old age stipend) 0.38 % / 0.93 % exempt employer
Foreign employee  0.04 % / 0.87 % exempt employee
Foreign employee  0.49 % / 1.17 % exempt employer
Employee on non-paid vacation 6.57 %  from min wage exempt employee
These are Social laws that enable most employees to be eligible for a series of possible stipends for events that can occur during a lifetime.
Although Bituach Leumi is still far from a service-oriented organization, at least today they have computers. I guess that in itself is a huge accomplishment due to the work-ethics and culture in Government agencies and the educational background of their employees.

 

 

 

Raise in taxes for individuals – From Jan 2013

On Aug 13, 2012 The “law for reducing the national deficit and change of the burden of tax 2012” was made public.

This law goes into affect on Jan 1, 2013 and includes 2 items regarding employees:

1) A change in the tax brackets for salaried employees as follows (amounts are from total gross pay):

up to 62,400 sh annually – 10%
from 62,401 sh – 106,560 sh annually – 14%
from 106,561 sh – 168,000 sh annually – 21%
from 168,001 sh – 240,000 sh annually – 31%
from 240,001 sh – 501,960 sh annually – 34%
from every additional sh – 48%

2) Anyone making annual income which exceeds 800,000 sh will incur an additional 2% tax on the amount over 800,000 sh

Employer’s expense to rise over next 3 years !

Change in Employer’s contribution to Social Security

 

As part of “the law to reduce the national deficit and change in the burden of taxes”, which was published today – August 13, 2012, a raise in the employer’s contribution towards Social Security has been authorized for the next 3 years, as follows:

From the higher level (on the part of salary over 60% of the average wage)

In 2013 – 6.5%

In 2014 – 7%

In 2015 – 7.5%

 

The current rate in 2012 is 5.9%.

This does not include employees who are pension-age, receiving a old-age stipend from Social Security or foreign workers or employees under age 18.

New !!! tax reconciliations on-line !

It seems that the Israel Tax Authority is trying to keep up with technology.

As from the year 2012, employees who are employed simultaneously by at least two and up to six employers with a total income of no more than 188,544 shekels (gross) can file their request for a tax reconciliation (teum mas) via the internet. (This is instead of filling out a 166 tax form, going in to your local tax office and waiting in line while losing valuable work hours)

You are able to print out a copy of what you reported for your records and the Tax Authority will send the employee, to the address you specify, the required letters for each of the employers with instructions on how to deal with the tax from what each of them are paying via payroll. This is usually done within a few work days and can save you the trouble of going in each year to renew the letters for your employers.

Note: You can only file online one time during the tax year. If there are any changes you will need to go personally to your local tax office to update the letters for the employers.

They have a simulator for taxes without a need to submit the information.

The taxes are not final, pending filing year end taxes for all the employee’s earnings. This is done by the employers, employees are exempt from this unless they have income other than salary. In any case, to check whether you are required to file taxes it is advisable to consult an Israeli certified CPA or Tax advisor.

You need to be very careful to correctly fill out all the information requested, as any mistake will result in wrong output. Before you attempt to do this make sure you have the last payslip from all employers on hand. The payslip has the employer’s name, address and tax ID number as he is registered with the Tax Authority.

You will first need to download and install a Toolbar for Government forms and you need to be using  Internet Explorer (versions 6,7,8,9) or Firefox (versions 3-11) and either Windows or Linux OS

http://forms.gov.il/forms/Resources/DowloadSetup/AGFormsDownloadToolbarEnglish.htm

New Tax Brackets for 2012

In 2012, the tax rates (%) and amounts in each bracket have been revised.

The new tax rates for 2012 are as follows:

monthly gross pay               tax rate in %                        tax

up to 5,200                                              10                                     520

8,880                                                          14                                    1,035

14,430                                                        21                                   2,021

21,780                                                       30                                    4,046

41,830                                                        33                                     11,022

each additional shekel                         48                                      ——

 

Personal credit points have been updated as well to 215 shekels each (from 209 shekels in 2011).

Note: the taxes are gross (prior to credits). All amounts are in shekels. Since taxes are configured annually the following table is for a monthly salary only. In certain situations other restrictions or laws may apply. The above information is meant as general information and in any case of contradiction, the existing tax laws and regulations are the deciding factor.

New Tax Brackets for 2011

In 2011, the tax rates (%) remain the same, but the amounts in each bracket have been revised.

The new tax rates for 2011 are as follows:

monthly gross pay tax rate in % tax

up to 5,070 10 507

next 3,590 (up to 8,660) 14 503 Continue reading “New Tax Brackets for 2011”