Israel Payroll Information – Deel Global Payroll

Updated on: 2025/08/04 14:03 (UTC)

Overview

Israel is a parliamentary democracy bordered by the Mediterranean Sea to the west, Egypt to the southwest, Jordan to the east, Lebanon to the north, and Syria to the northeast. Israel also is bordered to the southwest by the Gaza Strip and to the east by the West Bank, both of which are claimed by Palestine.

Israel’s currency is the Israeli New Shekel.

Employers in Israel are responsible for withholding income taxes and national and health insurance taxes from all employees, and making additional national and health insurance tax contributions. Additionally, employers must adhere to the Ministry of Industry, Trade, and Labor’s guidelines regarding compensation and benefits. All employers are required to withhold from employee pay and make contributions to mandatory private pension funds.

To employ foreign workers, employers must ensure that the workers have the proper visas and provide them with health insurance and housing subsidies. In addition, Israel has tax treaties with 50 countries.

Israeli citizens working in the United States are covered by U.S. tax law with possible treaty and work status exclusions applying. Work within the U.S. states and territories is covered by various labor laws.

CURRENCY DETAILS

The currency of Israel is the Israeli New Shekel (), also simply known as the New Shekel. The Israeli New Shekel also is commonly referred to simply as the Shekel, although officially the Shekel refers to Israel’s former currency in use from early 1980 to the end of 1985. A commonly used alternative transliteration of the word shekel from Hebrew, one of the two official languages of Israel and the country’s most widely used language, is sheqel. The internationally recognized three-letter currency code for the Israeli New Shekel is ILS. The plural form of shekel in Hebrew is shekalim and in English is shekels, with the Hebrew plural form alternatively transliterated as sheqalim.

When an amount of New Shekels is written using the currency symbol , the symbol follows the numerical value with a space between the numerical value and symbol. The manifestation of the aforementioned placement treatment in Hebrew, which involves a right-to-left writing system, is that the currency symbol appears to the left of the numerical value with a space between the numerical value and symbol.

Amounts of New Shekels also are commonly indicated in English using the currency symbol NIS, which while an abbreviation of the Israeli New Shekel currency’s former, but similar name of New Israeli Shekel still is in use. When an amount of New Shekels is written in English using the currency symbol NIS, the symbol precedes the numerical value with a space between the numerical value and symbol.

One hundredth ( ¹ ⁄ ₁₀₀ ) of a New Shekel is referred to as an agora, with the plural form of agorot in Hebrew and the plural form of agoras in English.

When amounts of New Shekels are written in Hebrew, the numerals are arranged in a left-to-right convention instead of Hebrew’s general right-to-left convention.

Digital Currencies: Israel does not consider digital currencies to accord with the country’s legal definition of currency.

Digital currency payments for services or to employees for their work generally are regarded in Israel as barter transactions. Bitcoin and other digital currencies are considered a taxable asset subject to capital gains taxes in Israel.

An employee’s income from digital currencies can be classified as income for tax purposes and payments in digital currencies also may be subject to value-added tax and capital gains tax as applicable.

TAXES

The national government generally enacts laws relating to income tax. There are no payroll related taxes levied by municipalities or cities.

Separately-administered social taxes involve contributions to Israel’s national insurance and health insurance programs.

The tax year is the calendar year, Jan. 1 to Dec. 31.

Income Taxes

Coverage: Employers doing business in Israel must withhold taxes on wages earned by all workers.

Employees: Employees are defined as all workers receiving wages, profits, benefits, allowances, or payments as remuneration for services performed. This includes officers of a company but not controlling members of a company. Employers must begin deduction from employees’ salaries when any remuneration is paid, notwithstanding amount of time worked or remuneration paid.

An individual is considered an Israeli resident if the “center of his life” is in Israel. The “center of life” test examines the connections that the taxpayer has to Israel as well as the taxpayer’s subjective intention. As a general rule, in order to determine a person’s “centre of life” the following criteria are considered (such criteria are not exhaustive):

the place of his permanent home;
his and his family’s habitual abode;
the place of his employment;
the place of his economic interests; and
the place where he is involved in social organizations.

Israeli resident individuals are taxed on their worldwide income, while foreign residents are subject to tax in Israel only on their Israeli-sourced income.

New immigrants and long-term returning residents may elect, within 90 days of their arrival in Israel, not to be considered as Israeli residents for a period of one year. This period is referred to as an “acclimatization period.” Additionally, foreign sourced income is tax exempt for an employee’s first 10 years from the date of immigration to Israel.

Rates and Thresholds: Income tax rates are levied on a progressive scale, with rates for employment income generally ranging from 10% to 47%, and with a high income surtax of 3% causing the highest income tax rate to be 50%. Israel’s progressive income tax brackets for passive income differ from those in effect for employment income and other types of income other than passive income. In the country’s progressive income tax system, portions of an individual’s income are allocated to the country’s personal income tax brackets, and each portion of income allocated to a tax bracket is taxed at the tax rate applicable to that tax bracket.

Effective for 2021, Israel’s personal income tax rates and minimum and maximum amounts of income for each tax bracket, as pertain to employment income, are as follows:

Range of Annual Income (New Shekels)	Range of Monthly Income (New Shekels)	Income Tax Rate
Up to 75,480	Up to 6,290	10%
More than 75,480 and up to 108,360	More than 6,290 and up to 9,030	14%
More than 108,360 and up to 173,880	More than 9,030 and up to 14,490	20%
More than 173,880 and up to 241,680	More than 14,490 and up to 20,140	31%
More than 241,680 and up to 502,920	More than 20,140 and up to 41,910	35%
More than 504,360 and up to 647,640	More than 41,910 and up to 53,970	47%
More than 647,640	More than 53,970	50%

Effective for 2020, Israel’s personal income tax rates and minimum and maximum amounts of income for each tax bracket, as pertain to employment income, were as follows:

Range of Annual Income (New Shekels)	Range of Monthly Income (New Shekels)	Income Tax Rate
Up to 75,960	Up to 6,330	10%
More than 75,960 and up to 108,960	More than 6,330 and up to 9,080	14%
More than 108,960 and up to 174,960	More than 9,080 and up to 14,580	20%
More than 174,960 and up to 243,120	More than 14,580 and up to 20,260	31%
More than 243,120 and up to 505,920	More than 20,260 and up to 42,160	35%
More than 505,920 and up to 651,600	More than 42,160 and up to 54,300	47%
More than 651,600	More than 54,300	50%

The progressive income tax rate documentation released by the Israeli government for 2021 and 2020 regarding tax on employment income includes a chart of tax brackets for the rates of 10% to 47% and describes the rate of 47% as applicable to all remaining income, with the high income surtax of 3% listed separately from the general tax brackets. As the high income surtax of 3% is assessed on annual income of at least 647,640 or monthly income of at least 53,970 for 2021, and on annual income of at least 651,600 or monthly income of at least 54,300 for 2020, the 2021 and 2020 income tax rate charts in this primer include a tax bracket of 50%, which is the sum of the standard top income tax rate of 47% plus the high income surtax of 3%, and with the income subject to this total rate identified.

Tax deduction tables for employment income paid to employees in Israel are available from the Israel Tax Authority, which released a 2021 Tax Schedule for Deduction from Salary and a 2020 Tax Schedule for Deduction from Salary. These tables applicable to withholding tax from employment income are based on the progressive income tax rates for employment income, with marital status and number of withholding credit points influencing the total amount of income tax to be withheld in accordance with the tables.

Registration: All employers must register with the Registrar of Companies in the Ministry of Justice and the Tax Authority in the Ministry of Finance, before commencing commercial activities.

To apply to the Registrar, companies must pay a fee along with their application. After doing so, companies will be issued a nine digit company number.

Once registered, all employers must also register with the Tax Authority using Form 4436 and must open a withholding tax file with the Tax Authority prior to making remuneration to employees or payments to other recipients.

Taxable Amounts: Israeli residents are subject to tax on their worldwide income minus allowable deductions. Taxable income includes salaries, wages, severance pay, pensions, and other forms of remuneration. Employees must also pay taxes on the usage value of company provided cars. Allowable deductions include residency, spousal, travel, child, single parent, new immigrant, recently employed, and other deductions. Employers may apply these deductions to withholding tax amounts at the instruction of the Tax Authority.

Foreign residents are subject to tax in Israel only on their Israeli-sourced income.

Withholding Methods: Israeli regulations mandate that income taxes be withheld from each paycheck and paid monthly to the Tax Authority.

Employees are required to provide their employer with Form 101, Employee Card, to indicate numerous details that affect calculations of income tax withholding on their wages. Employees must provide the form on their date of hire, and also must annually provide their employer with an updated copy of Form 101. Employers are required to implement at the start of each new calendar year the annual updated Form 101 filed by each of their employees, so employees need to provide their employer with an updated Form 101 by Dec. 31 of each year for their employer’s use during the upcoming calendar year.

Returns and Remittance: Income taxes must be paid in monthly installments, by the 15th day of each month. If the 15th day falls on the weekly day of rest of one’s religion, income tax payments can be made on the following day. These payments can be made at a bank or post office.

In addition to monthly payments, all employers must file annual audited tax returns and financial statements. Annual tax returns are due by May 31 and must be filed electronically for all online filers and businesses required to keep double-entry books. Returns are due by the April 30 for all others. However, accounting firms are allowed to spread out the filing of their clients’ tax returns over a longer period, without providing reasons.

Annual payroll reports also must be filed using Form 126. The form is generally filed in the spring and details the income tax and social taxes withheld by the employer from Jan. 1 to Dec. 31 of the prior year.

Recordkeeping: Generally, tax documents should be kept for ten years from the end of the tax year for which a return is filed.

Penalties: All overdue tax balances are subject to interest payments of 4% plus inflation until paid in full.

Social Taxes

Israel levies two social taxes on every resident: national insurance and health insurance. Employers are responsible for withholding taxes from employees and making additional payments. Both insurance taxes are paid to and managed by the National Insurance Institute (NII). National insurance provides employees with old age pension, leave payments, workers compensation, and other benefits. While health insurance is payable to NII, it is distributed by NII to the Health Management Organization (HMO) that employees choose (or to a default, if employees fail to make a select). The HMOs are required to provide employees with a standardized basket of medical services.

Coverage: Generally, all individuals are subject to national insurance taxes, while Israeli residents, but not nonresidents, are subject to health insurance taxes. However, the following individuals are exempt from payments to the NII:

those who earn no more than 5% of the applicable average monthly wage;
new immigrants (for a period of 12 months); and
those between the ages of 18 and 21 and enrolled in a secondary education institution, vocational course, pre-military course, or volunteers for a year of service.

Under the National Insurance Law, if a worker is employed by several employers or if a person receives early pension from several sources, the secondary employer or pension payer deducts national and health insurance contributions from his income or pension at the full rate.

Additionally, in the case of employees who take unpaid vacation, employers must make national and health insurance contributions for the first two months. After the third month, the employee is responsible for all national and health insurance contribution.

Rates and Thresholds: National insurance contributions are assessed on employees and employers based on wages paid to resident employees and nonresident employees. Employees and employers each have two separate national insurance contribution rates, one in effect for monthly income up to 60% of the applicable average monthly wage, and one in effect for monthly income that is more than 60% of the applicable average monthly wage and up to the maximum taxable monthly wage in effect. The applicable average monthly wage and national insurance contribution rates are subject to annual adjustment.

Effective for 2021, unchanged from 2020, the standard national insurance contribution rates assessable on monthly income of up to 6,331 paid to an employee who is a resident of Israel are 0.4% for the employee and 3.55% for the employer, and the standard national insurance contribution rates assessable on monthly income of more than 6,331 and up to 44,020 paid to an employee who is a resident of Israel are 7% for the employee and 7.6% for the employer.

Effective for 2021, unchanged from 2020, the standard national insurance contribution rates assessable on monthly income of up to 6,331 paid to an employee who is not a resident of Israel are 0.04% for the employee and 0.59% for the employer, and the standard national insurance contribution rates assessable on monthly income of more than 6,331 and up to 44,020 paid to an employee who is not a resident of Israel are 0.87% for the employee and 2.65% for the employer.

Effective for 2021, unchanged from 2020, the national insurance contribution rates assessable on monthly income of up to 6,331 paid to an employee who is not a resident of Israel and is a resident of the West Bank or Gaza Strip are 0.03% for the employee and 0.56% for the employer, and the national insurance contribution rates assessable on monthly income of more than 6,331 and up to 44,020 paid to an employee who is not a resident of Israel and is a resident of the West Bank or Gaza Strip are 0.61% for the employee and 2.49% for the employer.

Health insurance contributions are assessed on employees who are residents of Israel, but not their employer, based on employment income paid to them. Resident employees have two separate health insurance contribution rates, one in effect for monthly income up to 60% of the applicable average monthly wage, and one in effect for monthly income that is more than 60% of the applicable average monthly wage and up to the maximum taxable monthly wage in effect.

Effective for 2021, unchanged from 2020, the health insurance contribution rate assessable on monthly income of up to 6,331 paid to an employee who is a resident of Israel is 3.1% and the health insurance contribution rate assessable on monthly income of more than 6,164 and up to 44,020 paid to an employee who is a resident of Israel is 5%.

Exceptions to the standard national insurance and standard health insurance contribution rates assessed on wages paid to resident employees are available from the National Insurance Institute, with many of the exception rates listed on the institute’s webpage for salaried employee contribution rates.

Registration: All employers who have registered a withholding tax file with the Tax Authority will automatically be enrolled in a deductions file with NII.

Taxable Amounts: All income from employment relationships is taxable, including the value of fringe benefits and cost-of-living allowances.

Returns and Remittance: Health insurance payments and national insurance must be paid together to the National Insurance Institute.

NII payments must be paid and filed using Form 102 by the 15th day of every month. Filings and payments can be made online, at an authorized bank, or at the Department of Collection from Employers at a local NII branch.

Additionally, employers must make quarterly filings for every worker who is:

an early retiree,
a student in vocational training,
on leave without pay, or
a lecturer or artist with certain employment classifications.

Quarterly reports may be filed online.

Employers who employ residents of Israel or the Palestinian Authority in the West Bank, must report all payments to the Ministry of Population, Immigration and Border.

Recordkeeping: Documents generally should be kept for seven years.

Penalties: Employers who fail to withhold or pay insurance contributions may be liable to pay NII for all services provided to employees.

State/Jurisdiction Taxes

The Israel Tax Authority annually releases a list of communities whose residents, primarily because of the communities’ distances from the center of Israel, are eligible to have reductions in their income tax liability. These communities are known as beneficiary communities. A resident of a beneficiary community is qualified to receive a reduction in income tax liability based on residency in the beneficiary community if the individual has at least 12 months of residency in the beneficiary community and if the beneficiary community is the individual’s primary place of residence.

Employees who are qualified residents of a beneficiary community and want their eligibility for the beneficiary-community residency reduction for income tax, also known as the periphery tax break, to reduce their income tax withholding must inform their employers of this detail by using Form 101, Employee Card. Eligibility for the periphery tax break is indicated by placing a check mark in box 3 of Form 101’s section titled “I Request an Exemption or Tax Credit for the Following Reasons,” which is on the second page of the form.

Applicability of the periphery tax break to income tax withholding also is contingent upon employees providing their employer with Form 1312/A, Residency Permit By Virtue of Section 11 of the income Tax Ordinance Or Section 11 of the Free Trade Area in Eilat (Exemptions and Tax Deductions) Law, to indicate that they are qualified residents of a beneficiary community.

The periphery tax break functions as a tax credit equivalent to a percentage of income, capped by a maximum annual amount of income up to which the percentage is applicable. Beneficiary communities vary with regard to percentages of income and annual income caps applicable to the periphery tax break available to their residents.

The Israel Tax Authority indicates each year’s list of localities with beneficiary community status for the periphery tax break in the Reference Table: Income Tax from Salary And Wages that it released for that year. The list details each beneficiary community’s applicable percentage and maximum amount of annual income up to which the percentage is applicable. Amendments to a year’s list of beneficiary communities may be issued by the Israel Tax Authority after the start of the year, with the amendments typically applicable retroactive to Jan. 1 of the year.

The most recent list of beneficiary communities’ applicable reductions is contained in the 2021 Reference Table: Income Tax from Salary And Wages, which lists starting with page 18 numerous beneficiary communities and their tax credit percentages and maximum amounts of annual income up to which the percentages are applicable.

Individuals with at least 12 months of residency in a beneficiary community but who during a year would not have had 12 months of residency throughout the year because they established residency after Jan. 1 of the previous year are eligible for a prorated periphery tax break based on the number of days during the year when they have had at least 12 months of residency in their beneficiary community.

Other Taxes

Payroll Tax: Employers that are nonprofits or financial institutions must pay a payroll tax based on the amount of compensation they pay to employees.

Nonprofits are subject to a payroll tax of 7.5%. Financial institutions are subject to a payroll tax of 17%.

COMPENSATION AND BENEFITS

Compensation and benefits in Israel are regulated by a multitude of labor laws. In 1948, Israel established what is now known as the Ministry of Economy, formerly the Ministry of Industry, Trade, and Labor, and originally the Ministry of Commerce and Industry as a regulator and enforcer of Israel’s labor laws.

Among these labor provisions, is a mandate that all employers make to private pension funds for every employee. Employees select a pension fund from among plans approved by the Ministry of Economy. Contribution are set as a percentage of employee salary.

The Ministry of Economy oversees the observance of the labor laws by conducting regular inspections of businesses. Labor disputes requiring judicial action brought by the Ministry of Industry, Trade, and Labor or a private party are adjudicated in front of the Labor Court—a branch of the Ministry of Justice.

While Israeli labor law generally covers employees of Israeli employers in the West Bank, employees of Palestinian employers generally are covered by Jordanian labor law as it existed before 1967.

Coronavirus (Covid-19) Guidance: Employers may apply to the National Social Security Institute for reimbursement for days of sick leave paid to employees from Oct. 1, 2020, to July 7, 2021, because the employee must self-isolate, or because they must quarantine with a child under age 16 who must self-isolate. Employees must self-report days of self-isolation to the Ministry of Health as they occur, as reimbursement is made for up to four days prior to the reporting date. The amount of the reimbursement is 100% of the wages paid for the second day of sick leave and, for the third and later days of sick leave, 75% of wages if the employer has up to 20 employees or 50% of wages if the employer has more than 20 employees.

Minimum Wage

Effective since Dec. 1, 2017, Israel’s standard monthly minimum wage is 5,300 . Effective until Nov. 30, 2017, Israel’s standard monthly minimum wage was 5,000 .

The monthly minimum wage is higher for some economic sectors.

Lower monthly minimum wages than the standard monthly minimum wage are in effect for workers who are younger than 19 years old or who are apprentices.

Overtime

Generally, employees are required to pay overtime for any work performed in excess of

eight hours per day for those working a six day workweek,
nine hours per day for those working a five day workweek, or
45 hours in a week.

Overtime work cannot exceed four hours of overtime per day or 12 hours per week.

Employers must pay 125% of the worker’s normal wages for the first two hours of overtime in a day and 150% for any hours thereafter. Employees who work on a paid holiday must be compensated with 150% of their normal pay and an additional vacation day. Employees working a second shift work (classified as work between 3 and 11 p.m.), must be paid 115% of their base salary, and employees working a third shift (classified as work between 11 p.m. and 7 a.m.) customarily are paid 142.5% of their base pay.

Hours of Work

The regular workweek is 45 hours for workers 18 years of age or older and 40 hours per week for those under 18. The regular workday may not exceed eight hours for a six day workweek and nine hours for a five day workweek. The Ministry of Industry, Trade and Labor must approve any schedule that involves longer hours. Most employees must be given a weekly rest period of at least 36 consecutive hours, which for Jewish workers must include the Sabbath—sundown Friday to sundown Saturday—and for non-Jewish workers must include Friday, Saturday, or Sunday, whichever is the standard day of rest for that worker’s religion.

Holidays

Employers must provide workers with nine mandatory paid holidays per year after three months of service. These can be the Jewish religious holidays or, in the case of workers of other faiths, holidays related to those religions. Jewish holidays follow a lunar calendar, so the date of observance varies each year. They are observed from sundown to sundown.

Employees are entitled to 150% pay and an optional vacation day if they work during a holiday.

Leave

Employers in Israel are required to grant employees between 12 and 21 days of paid vacation, the amount depending on workers’ length of service with the same employer.

An employee must take at least seven consecutive days off in any given year but can carry over the remaining leave days into the next two years. Employees may not choose to take pay in lieu of leave, but upon termination they are compensated for any unused leave they have earned. Employees forfeit their right to be paid for leave if they work for pay for another employer during the leave period.

Sick leave: Employees are entitled to paid sick leave under the Sick Pay Law. Those who are covered by a collective bargaining agreement or a sick pay insurance program may have additional benefits.

Under the Sick Pay Law, employees who miss work due to illness are entitled to paid leave starting with their second day of absence. The maximum amount of paid leave depends on their length of service with their present employer. The benefit is 37.5% of an employee’s regular salary for the second and third days missed and 75% of regular salary after that. Employees accumulate 1.5 sick days per month of service with their employers (18 days per year) up to a maximum of 90 days.

Workers can use their accumulated sick leave to care for ill family members. They can use six days a year to care for a spouse or parent and eight days a year to care for a child under 16 years of age, which doubles to 16 days for single parents.

Carer’s leave: Employers must provide parents of children with incurable diseases who have worked at least one year 30 days of paid Carer’s leave. In the case of a single parent, the employee is entitled to 60 days of Carer’s leave.

Paid parental leave: Female employees who have worked at least one year for the same employer are entitled to 26 weeks of maternity leave. Up to 15 weeks of maternity leave is paid by the National Insurance Institute. The rest of the leave is unpaid.

The employee may use up to seven weeks of paid maternity leave before the estimated due date. Maternity leave may be extended for such circumstances as multiple births or hospitalization of the new mother or the baby. The maximum daily maternity allowance benefit is 1,459.50 . A birth grant also is paid within a month after the birth to help with some of the baby’s initial expenses.

Parents who are eligible for the full amount of leave may share it with their spouses. Employees are entitled to take unpaid leave following the conclusion of paid maternity leave for up to one year from the date of birth.

Employers must provide mothers returning to work following maternity leave with a one-hour break during the workday with no reduction of pay for four months. Employers may not dismiss an employee on maternity leave or within 60 days after its conclusion.

Mothers who give birth to multiple children in one birth are eligible for an additional three weeks of maternity leave for each child born after the first who was born during that single birth.

Working fathers are eligible for six days of paid paternity leave following the birth of a child, including the day of the birth itself. Three of these days will come from the father’s sick leave and the remaining from his annual leave. If the father has no remaining vacation days, those days will be granted as unpaid leave. A working father also can assume his wife’s leave starting six weeks after childbirth. The mother must declare in writing that she consents to waiving part of her maternity leave and that she is returning to work during the period in which she waives the leave. The daily allowance for the father’s leave cannot exceed 1,459.50 . After they have taken all paid leave, fathers are entitled to take up to 12 months of unpaid leave, the exact amount depending on length of service with the employer.

When a mother has given birth to multiple children in one birth, the father may take parental leave at the same time that the mother takes parental leave. The period when both parents simultaneously are on parental leave generally is up to seven consecutive days, although for each additional child born after the first during a single birth, the father also may simultaneously take leave during up to two of the three weeks of additional leave available to the mother.

Employers must provide mothers or fathers up to 12 months of unpaid leave after they have taken all paid leave. The exact amount of unpaid leave depends on the employee’s length of service.

The same provisions apply in the case of adoption.

Reservist leave: Under the Veterans Returning to Work Law of 1949, soldiers on reserve service may not be dismissed. When they return to work, they must be provided with jobs similar to those they previously had or the best jobs they can be given. After they return to work, they cannot be dismissed for the first six months, except on grounds of gross misconduct. Employers are not required to pay the salary of those on reservist duty.

Wage Payment

Compensation must be paid in full by cash or check at the place of employment or by deposit into an employee-authorized bank account. No other form of payment is permissible unless a collective agreement allows it. Monthly salaries must be paid by the 9th day of the following month. Salaries calculated on an hourly, daily, or weekly basis must be paid every two weeks, unless otherwise specified in a collective agreement or employment contract. If payment is not made on time, the Wage Protection Law requires that an employer pay the worker an extra 5% after the first week payment is delayed and another 10% for each subsequent week.

Employers are required to provide employees with a detailed wage slip featuring all payments and deductions from wages every month.

Bonuses and Special Benefits

Israel does not mandate employers to provide monetary bonus payments to employees but it does require other types of benefits.

Travel Allowance: Employers must provide workers with a travel allowance for transportation to and from the workplace. The maximum allowance for the allowance is 25.20 per day or the cost of a prepaid monthly bus ticket. Employers who arrange for the transportation of workers or whose workers live near the workplace are exempt from providing this benefit.

Cost of Living Allowance: All employees receive a cost-of-living allowance to protect their wages from the drastic effects of inflation. The cost-of-living allowance is payable periodically based on the increase in prices as reflected by the official consumer price index.

Retirement Plans: With the Pension for Every Worker legislation in 2008, Israel began requiring all employers to provide a private pension fund to supplement the federal pension. These pension plans provide employees with an old age pension, disability insurance, and life insurance. Pension funds also include a severance pay component which is invested in the same manner as the pension, but subject to different withdrawal regulations, as discussed above. Contributions are regulated by the Ministry of Industry, Trade, and Labor and must be made to government approved pension managers.

The Israeli private pension system is supervised and regulated by the Capital Market Insurance and Savings Division (the CMISD), which is a division within Israel’s Ministry of Finance.

Coverage: All employers must open a private pension plan for employees after six months of employments, unless otherwise stipulated in a collective agreements. This applies to both full and part time employees but is not obligatory when employment is on a freelance basis. An employer is not obligated to provide retroactive pension plan contributions for the initial 6 months of employment.

However, employers hiring new employees who were previously covered under a different plan must start making contributions and withholdings starting after three months of employment or at the end of the year—whichever of the two dates is earlier. These contributions and withholdings are retroactive to the first day of the year.

Rate: Employers must contribute a total of 10% of a worker’s salary towards the mandatory pensions and employees must contribute 5%. The mandatory employer contribution consists of a contribution of 5% towards the employee’s pension and 5% towards a mandatory severance account.

Employers may voluntarily contribute up to the equivalent of 7.5% of a worker’s wages towards the pension account and 8.33% towards the provisions for severance pay account. Employees may voluntarily contribute a maximum of 7% of their wages towards their pension fund.

Taxable Wages: Contributions are calculated on total wages paid to employees. The maximum calculable wage for mandatory contributions is set at the average wage in the economy. However, tax benefits for pension saving are granted for a wage of up to four times the average wage in the economy.

Registration: Employees can elect to invest any of the comprehensive pension funds approved by the Ministry of Finance. If workers do not notify their employers of their selection within 60 days of beginning work, employers must open and contribute to a New Comprehensive Pension Fund. If employees change their selection or make their initial selection after the 60 day deadline, employers must change their pension funds.

Recordkeeping: Documents generally should be kept for seven years.

Penalties: Employers who do not make contributions to employee pension funds could be subject to legal action and payment of damages. Additionally, those that fail to make severance pay contributions must pay employees the equivalent to the severance pay mandated in the Severance Pay Act to the employee for the period in question.

Termination Pay

Notice: In terminating employees, employers must provide proper notice or compensation for the notice period in lieu of notice. In addition, collective agreements and individual contracts can put limits on employers’ ability to terminate employees.

If the worker is on a monthly salary, the following notice requirements apply:

first six months of service: one day’s notice for each month of employment;
the seventh month to the first year: six days’ notice plus 2.5 days for each month worked during this period; and
after the first year: a month’s notice.

If the worker is paid more frequently than monthly, the following notice requirements apply:

first year of service: one day’s notice for each month of employment;
second year of service: 14 days’ notice plus one day for every two months worked during this period;
third year of service: 21 days’ notice plus one day for every two months worked during this period; and
after three years: a month’s notice.

No notice is required in the case of a fundamental breach of contract, but employers must inform employees of the reasons for dismissal. The decision not to renew a fixed-term contract does not constitute a termination unless the contract contains language that creates a legitimate expectation of continuity. In these cases, advance notice must be given of the intention not to continue a contract after its expiration. The same notice requirements apply to employees wishing to terminate an employment contract.

Severance Pay: Under the Severance Pay Law of 1963, workers who have been with an employer for a full year and seasonal employees who have been with an employer for two seasons are entitled to severance pay if they are dismissed. Pay is equal to a month’s wages per year of employment for salaried workers and two weeks’ wagers per year of employment for a wage worker. As defined by the Israeli government, salaried workers are those paid on the basis of a month or longer and wage workers are all other workers. Severance pay must be deposited within 42 days after the employee’s final salary payment.

Employers are required to make monthly deposits to a mandatory private pension severance pay fund, equivalent to 10% of employee salary. Half of this contribution is deposited in a pension fund as discussed below, and half is deposited in a severance pay fund. The funds are invested according to employees’ choices as discussed below. In the case that employees are eligible for severance pay under the Severance Pay Law, employees may withdraw from their severance pay account, which will constitute a part of severance pay. Employers will pay the balance of the severance pay.

Employees may also withdraw funds from severance pay accounts in cases of death, disability, or retirement after the age of 60. If employees make withdrawals from their pension accounts before the occurrence of such an event, employers will be refunded payments to the severance accounts. Otherwise, such payments are considered not refundable.

Workers’ Compensation

Employees who cannot work for at least 12 days because of a work-related injury or disease are entitled to an injury benefit of 75% of their regular wages for up to 13 weeks (91 days) plus medical care and rehabilitation. Workers receive benefits from the NII, but employers reimburse the institute for the benefits paid for the first 12 days.

Recordkeeping

Employment documents generally should be kept for seven years.

FOREIGN WORKERS

Foreign workers are covered by most labor rights, but are not able to buy into the national health insurance. However, employers are mandated to contribute and withhold funds from foreign workers for private insurance, and a housing fund.

Visas: In order to work legally in Israel, individuals must obtain a work visa, temporary resident visa, or an immigration visa. Applications for visas can be filed at affiliates of the Ministry of Foreign Affairs.

Employers must apply to the Ministry of the Interior for a workers permit and pay a fee, in order to employ foreign workers with a work visa.

The work visa is usually given to experts in their fields, artists, and migrant workers, and must be approved by the Ministry of the Interior. Work visas are valid for a year, after which they can be renewed. To apply for a work visa, employers must pay a yearly fee, plus an additional one time processing fee to the Ministry of the Interior along with an application.

Employees who wish to change employers must apply for a temporary visa with the Population Registry in the Ministry of the Interior. Temporary visas are valid for up to a month. Once employees find new employment, employees must report it to the Ministry of the Interior.

Construction workers hired through an employment agency may change employers regularly every three months (on Jan. 1, April 1, July 1, and Oct. 1), without needing a new work permit. Additionally, employers of construction workers must deposit 700 in a special account for each construction worker, which is paid to employees upon exiting Israel.

Temporary resident visas and immigration visas are only granted to individuals eligible to immigrate to Israel under the Law of Return. While an immigration visa is given to migrants applying for Israeli citizenship under the Law of Return, a temporary resident visa is given to an individual eligible under the Law of Return but not applying for citizenship.

Taxes: A foreign resident company or individual is subject Israeli income tax, if the income was produced or derived in Israel, i.e. the location for the production of the income is Israel, with a few exceptions.

Additionally, foreign residents deemed to be experts working in their field may deduct much of their living expenses in calculating their taxable income.

Wages/Payments: Wages and payments to foreign workers are subject to the same laws as Israeli residents. Additionally, there are no restrictions on payments in foreign currency.

Health and Housing Benefits: Employers may deduct payment for government-mandated housing and private health insurance provisions. Specifically, employers are required to provide housing or a housing stipend to employees along with private health insurance (foreign workers are not eligible for state health insurance).

The required housing stipend amount varies depending on the geographical region of the employee’s residence. If the employer provides foreign workers with a residence, the employer may deduct a maximum of half of the amount of the applicable subsidy from the employee’s pay. Employers may also deduct some applicable fees and taxes associated with the residence.

In addition, employers may deduct up to the equivalent of a third of the monthly health insurance premium from the employee’s salary. The plan can be elected from one of the four medical insurance providers in Israel. Additionally, employers must elect a comprehensive health insurance plan, which covers emergency care and everyday medical expenses.

Overall deductions for health and housing benefits may not exceed 25% of an employee’s salary.

WORKING IN THE UNITED STATES

Foreign workers from Israel must meet general visa requirements and be certified to be employed in the United States. General visa requirements for the U.S. are included in the separate

U.S. employers also must check the names of all new-hires and employees against the Specially Designated Nationals and Blocked Persons List, administered by the Treasury Department’s Office of Foreign Assets Control (OFAC). Because OFAC prohibits financial transactions with individuals on the list, employers cannot employ them and may face fines for failing to comply.

Israeli workers are eligible to work in the U.S. under H-2B visas, which cover labor or services of a temporary or seasonal nature in occupations other than agriculture or registered nursing. The number of H-2B visas issued each year is limited by U.S. law.

For tax purposes, Israeli citizens are subject to U.S. employment-based taxation on income earned in the U.S. unless they can claim an exemption under certain tax treaty provisions or they work under specific visa types that exempt earnings from taxes. Israel has a tax treaty with the U.S.

State and local taxation of Israeli workers also can apply, although some states within the U.S. recognize international tax treaties that can eliminate that income tax liability for foreign workers.

The U.S. labor laws apply to all workers employed and providing services in the country.

Work eligibility as an employee is contingent upon Department of Homeland Security and Labor Department approval and the employee receiving a U.S. Social Security number from the Social Security Administration.

Tax Residency: In general, employees working in the U.S. on a temporary basis are considered nonresidents for tax purposes unless they qualify for resident status. Employees can be granted permanent resident status through the so-called green card test or if they meet the substantial presence test under the U.S. tax code. More information on these requirements is in the

Permanent residents are subject to U.S. tax requirements the same as U.S. citizens and are taxed under the U.S. system on their worldwide earnings.

Income Taxes: Generally, nonresidents in the U.S. who are from Israel and are working in the U.S. are subject to U.S. taxes based on their U.S.-sourced income. Income is taxed differently based on whether it is categorized as wage income or nonwage income, which includes interest and dividends.

A Form W-4, Employee’s Withholding Certificate, must be filed by each employee with their employer. All nonresidents in the U.S. who are from Israel and are working in the U.S. must claim “single” in Step 1c, regardless of marital status; write “Nonresident Alien” or “NRA” in the space under Step 4c of the form; and may not claim “exempt” in the space under Step 4c.

Nonresident alien employees may adjust withholding using Step 2b or 2c of the Form W-4; certain employees also may be able to use Steps 3, 4a, or 4b. More information about Form W-4 requirements for nonresident alien employees is available in the

Although the versions of Form W-4 issued in 2020 or later significantly differ from the versions issued in 2019 or earlier, nonresident employees that filed a valid version of Form W-4 from 2019 or earlier with their employer do not need to file another Form W-4 with the employer unless they need to implement a change for their withholding. On Forms W-4 issued in 2019 or earlier, nonresident alien employees were required to check the “single” box on line 3, regardless of marital status; write “Nonresident Alien” or “NRA” above the dotted line on line 6; and were not permitted to claim “exempt” on line 7 of the form.

An additional amount is added to a nonresident alien employee’s wages for calculating federal income tax withholding, with the amount based on pay period frequency and the date of the employee’s most recently filed Form W-4. The table of additional amounts applicable to Forms W-4 from 2020 or later and the table applicable to Forms W-4 issued before 2020 are available in the

Nonwage income and self-employed foreign workers can be subject to income tax withholding at a flat rate of 30%.

Additionally, foreign workers may be taxed differently based on the specific type of visa they hold.

Tax treaties: Israel and the U.S. have a tax treaty with provisions addressing host country taxation of the nonresident workers. A summary of those benefits is listed in the Tax Treaty Exemption Comparison Chart. To claim the tax treaty benefit, the nonresident must file Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with the employer.

Students, trainees, teachers and researchers in particular must include a statement with Form 8233 to claim a tax treaty exemption from withholding of tax on compensation for dependent personal services. This statement affirms that the teacher or researcher is temporarily in the U.S. for purposes of studying or has accepted an invitation by the U.S. government (or by a political subdivision or local authority) for the purpose of teaching or engaging in research for a period not expected to exceed two years by a university or other recognized educational institution in the U.S. It also must affirm that the individual will receive compensation for services performed in the U.S. The student exemption is not to exceed $3,000 a year; no limit is placed on the teacher or researcher compensation for Israeli citizens.

Examples of the statements necessary to claim a treaty exemption from U.S. taxes are included in Internal Revenue Service Publication 519, U.S. Tax Guide for Aliens.

Social Taxes: Most foreign workers are subject to paying into the U.S. Social Security system. Foreign nationals who are exempt from paying income tax and who do not have the eligibility to receive a social security number may not be required to pay social taxes. Foreign workers contributing to Social Security for a certain time period may be eligible to receive benefits.

Generally, foreign workers in the U.S. that have specific visas as exchange visitors or students or who are temporarily in the U.S. for agricultural work are not subject to social taxes on income that is obtained from the purpose in which they originally entered the U.S.

Totalization Agreements: Israel and the U.S. have not entered into a totalization agreement.

Wage Payment: Under certain visas for certain types of employment, employers are required to pay foreign workers the higher of either the prevailing wage or the actual wage that is paid to U.S. workers that have similar skills and qualifications.

There are no particular requirements that employees be paid in U.S. dollars.

TREATY ARRANGEMENTS

Israel has entered into more than 50 income tax treaties, including an income tax treaty with the United States.

The countries with which Israel has a bilateral income tax treaty in effect are Australia, Armenia, Austria, Azerbaijan, Belarus, Belgium, Brazil, Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, India, Ireland, Italy, Jamaica, Japan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Netherlands, North Macedonia, Norway, Panama, Philippines, Poland, Portugal, Romania, Russia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Serbia, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, United States, Uzbekistan, and Vietnam.

Israel additionally has an income tax treaty in effect with Taiwan (the Republic of China).

Israel has entered into more than 20 totalization agreements. The countries which Israel has a totalization agreement with are Argentina, Austria, Belgium, Brazil, Bulgaria, Canada, Czech Republic, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Poland, Romania, Russia, Slovakia, Sweden, Switzerland, Ukraine, United Kingdom, and Uruguay

RESOURCES

All resources are in English unless otherwise noted.

General

U.S. State Department: U.S. Relations With Israel

CIA World Factbook: Israel

Israel Government Home Page (Hebrew)

Israel Ministry of Economy and Industry: Invest in Israel

Currency Details

International Organization for Standardization: Currency Codes - ISO 4217

Unicode Consortium: Currency Symbols

United Nations: United Nations Terminology Database: Israel

Taxes

Income Tax Ordinance (Hebrew)

Israel Tax Authority: (Hebrew)

Deductions Booklets - Annual (Hebrew)
Deductions Booklets - Monthly (Hebrew)
Information for Employers (Hebrew)

Ministry of Finance

Israel National Insurance Institute

Compensation and Benefits

Israel Ministry of Labor, Social Affairs and Social Services: (Hebrew)

List of Laws, Regulations and Orders (Hebrew)
Rights of Foreign Workers

(Hebrew)

Israel National Insurance Institute: Covid-19 Sick Leave Reimbursement (Hebrew)

Foreign Workers

Israel Ministry of Foreign Affairs

Israel Ministry of Aliyah and Integration (Hebrew)

Working in the United States

U.S. Department of Labor:

Foreign Labor Certification
Hiring Foreign Workers

U.S. Internal Revenue Service:

IRS Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens
IRS Publication 15, Circular E, Employer’s Tax Guide
IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
IRS Publication 519, U.S. Tax Guide for Aliens
IRS Publication 901, U.S. Tax Treaties

Treaty Arrangements

Israel Ministry of Finance: Double Taxation Treaties (Hebrew)