The Israeli currency is the Israeli Shekel (ILS). In 2021, ILS 3.2266 was equal to USD 1. In that year, the average worker in Israel earned ILS 176 029 (Secretariat’s estimate).

In general, spouses are taxed separately on their earned income, subject to the condition that its sources are independent. The household is taxed jointly if their earned income is deemed to be interdependent. Until 2014, the conditions for interdependence involved situations where one spouse worked in a business that the other spouse either owned or had certain levels of capital or management/voting rights. Since 2014, spouses could still be taxed separately, even in cases where their earned income is deemed to be interdependent, if the labour of both spouses is needed to run the business and their income is commensurate to their effort.

The standard tax credits are given in the form of credit points subtracted from the tax liability. Each point is worth ILS 2 616 in 2021.

  • Basic credit: Every resident taxpayer is entitled to 2.25 credit points (ILS 5 886 in 2021).

  • Additional credit for women: Women are entitled to a further half credit point (ILS 1 308 in 2021).

  • Child credit: Working mothers (and fathers in one parent families) with children aged under 18 are entitled to one additional credit point per child (ILS 2 616 in 2021). In 2012 this credit was increased to 2 credit points per child aged under 5. Since 2012, married working fathers with children aged under 2 are also entitled to 2 credit points per child. In 2017, the credit for both parents was increased to 2.5 credit points per child aged under 5. Since, according to the Taxing Wages methodology, the children in the model are between 6 and 11 inclusive, this change was not included in the model.

  • Single parent credit: Single parents (male or female) are entitled to one additional credit point.

  • Tax credits are awarded for contributions to approved pension schemes, up to a ceiling that varies according to the employee’s circumstances.

  • Employees living in certain development areas or in conflict zones receive credits as a percentage of their income up to ceiling. In 2016, a comprehensive reform was implemented, where the average credit was decreased but the number of beneficiaries more than doubled. In 2021 the credits range from 7 % in the lowest category to 20% in the highest category with ceilings between ILS 131 640 and 251 280. About 20% of the population lives in these areas.

  • New immigrants are entitled to three additional credit points in their first eighteen months in Israel, two additional credit points in the following year, and one credit point in the year after.

  • Discharged soldiers receive 2 credit points for three years after the completion of at least 23 months of service or 1 credit point for a shorter service.

  • Graduates of academic studies receive 1 credit point for one year after the completion of a B.A. degree (or after the completion of 1 700 study hours that led to a professional certificate) and 0.5 credit point for one year after the completion of a M.A. degree.

The tax schedule for earned income in 2021 is as follows:

There are no regional or local income taxes.

Social security contributions consist of a combination of social security contributions and health insurance. The tax rates paid by employees and employers are applied in two brackets:

  • A reduced rate for income up to a level of 60% of the average wage per employee post (ILS 6 331 per month in 2021).

  • A full rate for income exceeding 60% of the average wage per employee post and up to ILS 44 020 per month (in 2021).

The taxable base for social security insurance contributions paid by employees is the total amount of the gross wage or salary including fringe benefits. The assessment period is the calendar month. The effective employees’ contribution rates in 2021 are as follows:

Employers on behalf of their employees also pay social security insurance contributions. These relate to National Insurance only - employers do not pay any contributions for health insurance.

The employers’ contribution rates in 2021 are as follows:

The following payroll taxes exist in Israel but neither of them is included in the modelling as they have limited coverage:

  • Wage tax on the non-profit institutions: the VAT law imposes a 7.5% on the wage-bill on the non-profit sector including Government,

  • Wage tax on the financial institutions: the VAT law also imposes a 17.0% tax on the wage-bill of the financial institutions.


A monthly child allowance is paid to the parent (usually the mother) of unmarried children aged up to 18. The amount of the entitlement for each child depends on the date of birth of the child. Between August 2003 and June 2009, all children born after 1 June 2003 received the same benefit as the first child. But, according to the Coalition agreement signed in March 2009, the benefits for the second, third and fourth child (including those born after June 2003) were increased gradually over a period of four years (i.e. from 2009 to 2012). In August 2013 the allowance for all children born after June 2003 were decreased to ILS 140 per month per child.

In December 2015 (retroactively from May 2015) the allowance for all children were increased.

Moreover, the government deposits ILS 50 per child per month, starting with May 2015 (for the period May 2015-December 2016, the actual deposit was only delivered, in 36 equal instalments, between January 2017-December 2019). The savings are liquid only when the child turns 18. Considering this delay of cash payments, they do not benefit the household, but rather the child and therefore are not included in the Taxing Wages modelling for 2021.

In addition, a Study Grant is paid to lone parents with children aged 6 to 18. The grant is paid in one instalment, usually in September at the beginning of the school year. In 2021, the grant per child was ILS 1 021.

  • There has been a policy of gradually reducing the level of personal income taxes since 2003. This policy was expected to continue till 2016 but came to an end in 2012 with the top tax bracket increasing from 45% to 48% although the rate of one middle income tax bracket was further decreased from 23% to 21%. In 2013 a surtax of 2% was imposed on total income above ILS 811 560, effectively increasing the top marginal rate to 50%. In 2017 the surtax was increased to 3% on total income above ILS 640 000, while the top marginal rate remained unchanged at 50%. In 2013, the value of some tax brackets were not fully indexed to the CPI and even suffered a nominal decrease. In 2014, the value of all tax brackets and of the "credit point" were not indexed to the CPI. In 2017, some tax rates and the width of some tax brackets were changed, effectively decreasing the tax burden for low and mid income while increasing the burden for higher incomes.

  • The full contribution rate for employee social security contributions increased gradually from 9.7% in 2002 to 12% in 2006. The reduced contribution rate decreased from 5.76% in 2002 to 3.5% in 2006. The upper threshold for contributions was removed in July 2002 but re-instated one year later. In August 2009, as a temporary measure until December 2011, it was increased to 10 times the average wage per employee post until December 2010 and to 9 times the average wage per employed post until December 2011.

  • Prior to July 2005, there was only one contribution rate for employer social security contributions, set at 5.93% between July 2002 and June 2005. The upper threshold for contributions was removed in July 2002 but was re-instated one year later. The current system of two tax brackets was introduced in July 2005 with a reduced contribution rate of 5.33% and a full rate of 5.68%. There has been a lowering of rates in each year between 2006 and 2009. In August 2009, as a temporary measure until March 2011, the reduced rate was increased from 3.45% to 3.85%. In April 2011 the regular rate was increased to 5.9%. It was increased again to 6.5% in January 2013, 6.75% in January 2014, 7.25% in January 2015, 7.5% in January 2016 and 7.6% in January 2019.

  • The Employers tax on wage bill of the non-profit sector excluding Government was abolished in 2008.

  • In the period between August 2003 and June 2009, all children that were born on or after 1 June 2003 received the same level of benefit payment as the first child. The 2009 Coalition agreement introduced a gradual increase in the benefit payments for the second, third and fourth children in all families (including those where children were born after June 2003) over a period of four years from July 2009 to Apr 2012. In August 2013, the allowance for all children born after June 2003 was decreased to ILS 140 per month per child. In December 2015 (retroactively from May 2015) the allowance for all children were increased.

  • In 2017, the tax credit for both parents was increased to 2.5 credit points per child aged under five.

People entitled to the EITC and who worked during the pandemic in April-December 2020 got a special bonus (see details in paragraph 6.3).

The average wage figures represent the amount earned for a full time post by employees working 35 hours per week or more. Until 2011, the AW data came from a combination of two sources - the income and expenditure survey and the labour force survey. Since 2012, the data come exclusively from the income and expenditure survey as the labour force survey has no more data on income. The Central Bureau of Statistics has now computed a new AW series based exclusively on the income and expenditure survey back from 2000.

As to the economic classification, until 2012, Israel used a modified version of ISIC 3 where the B-I industries (see Table below) are a very close equivalent of C-K industries in ISIC 3.1. Israel's Central Bureau of Statistics adopted ISIC 4 in 2012 and the Average Wage used in the modelling is based on ISIC 4 since 2013.

Until 2007, employers were not legally obliged to pay into a pension plan for their employees. Pension rights were guaranteed in collective agreements that covered less than half of the labour force. About one million employees in Israel had no pension arrangement (mainly those earning a relatively low wage, temporary workers and those working for subcontractors).

In 2008, a compulsory employment pension was introduced for employees with a period of employment of at least 6 months. The minimum rate of contributions in January 2021 was 18.5 per cent of the employee’s salary (up to the level of the average wage of ILS 10 551 per month), about one third to be paid by the employee and two thirds by the employer.

A non-wastable earned income tax credit was introduced in 2008 in selected geographical areas of Israel covering 15 % of the population. Entitlement to this credit is established based on earnings in the previous year. The tax credit was extended to all areas of Israel in 2012 (based on the earnings in 2011 and therefore we already included it in the 2011 version of the model). For mothers of children up to the age of two and for single parents the full coverage started in 2011 (based on earnings in 2010).

By law, workers aged 23 and over who are the parents of one or two children under the age of 18 (or workers aged 55 and over even without children), and earn at least ILS 2 110 per month (about 40% of the minimum wage) but not more than ILS 6 370 per month are entitled to a monthly supplement of up to 340 ILS. The corresponding figure for a family with three or more children is ILS 490.

Since 2016, single parents are eligible for the EITC for a wider income range – from ILS 1 300 per month to ILS 9 640 per month (for a single parents of 1-2 children) or ILS 11 770 per month (for a single parent of three or more children).

Since 2013 (based on earnings in 2012), these sums were increased by 50% for working mothers (and fathers in one-parent family).

A temporary measure (for earnings in 2018 only), expanded the 50% bonus to all working fathers and furthermore added a bonus of 30% for families where both parents work. This measure is no longer in effect and is not included in the Taxing Wages modelling for 2021.

To help workers specially hurt by the COVID-19 pandemic, a temporary measure (for earnings in 2020 only), added a 62% bonus to the EITC for April-December 2020 (but not less than ILS 990). Therefore, an equivalent annual 46.5% bonus was included in the 2020 Taxing Wages model but not in the 2021 Taxing Wages model.

Families in which both parents work, and their joint income does not exceed ILS 12 240, are entitled to these benefits for each wage-earner. The grant is paid four times a year directly into the account of the eligible persons.

2021 Parameter values

2021 Tax equations

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