Why Is the Israel Tax Authority Sending Me Bills Before I Have Filed Anything?
Because Israel collects income tax as you earn it, and your income has a slice that nobody withholds on. Your Israeli employer withholds tax on your salary every month, but no one withholds Israeli tax on your foreign dividends, your US-brokerage capital gains, your overseas rental, or your freelance billing. To collect that tax in real time rather than 18 months later, the Israel Tax Authority makes you pre-pay it in instalments called מקדמות (mikdamot) (advance-tax payments)1.
Not advice
This is the cross-border trap. Back home you were probably on pure payroll withholding: in the US your employer withholds and your broker hands you a 1099; in the UK, PAYE quietly squares everything so most employees never file at all. You arrive in Israel assuming the same, then a payment demand lands for tax on income your Israeli employer never touched. Almost every oleh with a foreign brokerage or a freelance side income is blindsided that Israel asks them to pre-pay tax on non-Israeli money, on a fixed instalment calendar, before the year is even over.
Who Actually Owes Mikdamot?
You owe mikdamot whenever you have taxable Israeli income that no Israeli payer is withholding on. In practice three groups of olim are caught.
The self-employed. If you are an עוסק מורשה (osek murshe) (licensed dealer) or osek patur (small exempt dealer), nobody withholds for you at all. The Israel Tax Authority sets your mikdamot as a percentage of your turnover and you pay every period1.
Salaried olim with income on the side. This is the surprise group. Your payslip withholding covers your salary and nothing else. The instant you also hold a foreign brokerage paying דיבידנד (dividend)s, a US account with realised capital gains, a flat you rent out abroad, or a freelance invoice or two, that slice has no Israeli withholder. The Tax Authority issues mikdamot so the tax on it is pre-paid alongside your salary tax1.
Investors and landlords with no Israeli employer. Retired or living on portfolio and rental income? There is no payslip at all, so unless an Israeli broker is withholding at source on a given holding, the matching tax is collected through mikdamot.
The 10-year exemption changes who owes, not how it works
How Does the Mikdamot System Actually Work?
Mechanically it is pre-payment toward a bill the Israel Tax Authority has not finalised yet. Through the year you make instalments; after year-end you file the annual return and the two are netted off.
When Do I Pay, and How Much?
Payments are usually bi-monthly (every two months), with some taxpayers on a monthly cycle, paid through your תיק (tik) (tax file) at the Israel Tax Authority2. How the amount is set depends on who you are:
- Self-employed:the Tax Authority assigns you a coefficient, a percentage of each period's turnover. You report your turnover for the period and pay that percentage. As your sales rise and fall, so does each instalment1.
- Everyone else (salaried-plus-other, investors): the instalments are typically based on the income on your last assessed annual return, spread across the year, on the assumption this year resembles the last1.
What Happens at Year-End?
After the tax year you file your annual return, the דוח שנתי (Doch Shenati), which states your real income and real tax for the year4. The Tax Authority subtracts everything you already pre-paid through mikdamot (and any salary withholding). If you pre-paid more than the final bill, the difference is refunded, with interest and indexation added in your favour. If you pre-paid less, you settle the shortfall, and that is where the penalty bites (below)4.
My Income Dropped. Can I Lower the Instalments Instead of Waiting for a Refund?
Yes, and you should. You do not have to over-pay all year and wait. File a בקשת התאמה (bakashat hatama) (request to adjust the advances) with the Israel Tax Authority, with supporting documentation, to reduce or zeroyour mikdamot when this year's income is genuinely lower than the basis they used3. Common oleh triggers: you sold the foreign brokerage that drove last year's gains, a freelance contract ended, or a foreign income just moved under the 10-year exemption.
The flip side matters too: if your income rose sharply and your instalments are based on a smaller prior year, you can voluntarily pay more so you are not hit with an interest charge on a large year-end shortfall. The system is two-way; the request keeps the instalments tracking reality3.
What Is the Penalty for Underpaying?
Not a flat fine. If your mikdamot fell short of the tax actually due, you owe הפרשי הצמדה וריבית (hefreshei hatzmada veribit) (indexation differentials plus interest) on the shortfall, calculated from the original instalment due dates to the day you pay4. Two pieces: hatzmada indexes the unpaid tax to the consumer price index so inflation does not erode it, and ribit adds a statutory interest rate on top. The longer the underpayment sits, the more it costs. That is the whole reason to set the instalments correctly: an honest, accurate mikdama is cheaper than a too-low one you true up a year later.
Worked Example: An Oleh With a US Brokerage and an Israeli Salary
Maya made aliyah and works for an Israeli tech company. Her Israeli employer withholds מס הכנסה (mas hachnasa) on her salary every month, so the salary side is handled. She also kept a US brokerage account that, this year, threw off taxable dividends and realised capital gains.
Here is the cross-border catch. Because the brokerage income predates aliyah behaviour she cannot assume the 10-year exemption blankets it: gains realised on the US account may fall under the exemption window, but the position is fact-specific and, from 1 January 2026, even exempt foreign income is reportable5. To the extent any of that US income is Israeli-taxable, nobody withholds Israeli tax on it: not her Israeli employer, not her US broker. So the Israel Tax Authority issues mikdamot to pre-pay the Israeli tax on the taxable slice, on top of her salary withholding.
Back home Maya never saw this. In the US her broker simply issued a 1099 and she squared up once a year on Form 1040; her US employer's W-2 withholding covered the wage side. Nothing asked her to pre-pay tax on investment income mid-year. In Israel the as-you-earn principle reaches that income through the instalment calendar instead. If her gains turn out smaller than projected, she files a bakashat hatama to cut the instalments3; if larger, she tops up to dodge the interest charge.
US persons: this is collection timing, not the PFIC question
How Is Mikdamot Different From the Payroll Withholding You Knew Back Home?
| Feature | Home-country payroll withholding (US W-2 / UK PAYE) | Israeli mikdamot (advance tax) |
|---|---|---|
| Who pays it over | Your employer / broker withholds and remits | You pay it yourself through your tik at the Israel Tax Authority |
| Covers which income | Mainly salary; investment income often via separate withholding | Income with no Israeli withholder: foreign dividends and gains, foreign rental, freelance billing, self-employment turnover |
| How the amount is set | Tax tables applied automatically by the payer | Self-employed: a coefficient on turnover. Others: based on your last assessed return1 |
| Frequency | Each payday | Usually bi-monthly, some monthly2 |
| If it is too high | Adjust your W-4 / tax code; refund at year-end | File a bakashat hatama to reduce or zero the instalments3 |
| If it falls short | Pay the balance at filing | Pay the shortfall plus hefreshei hatzmada veribit from the due dates4 |
Israel collects income tax as you earn, but withholding only happens automatically where there is an Israeli payer, your employer on salary. Income with no Israeli withholder, such as foreign dividends, US-brokerage capital gains, foreign rental, or freelance billing, is collected instead through mikdamot, advance-tax instalments you pay yourself to the Israel Tax Authority through your tik (tax file). Instalments are usually bi-monthly: the self-employed pay a Tax Authority coefficient applied to turnover, while others are billed based on their last assessed annual return. Salaried olim are caught more often than they expect, because payslip withholding covers the salary only. If your income drops you can file a bakashat hatama to reduce or zero the instalments, and the annual return (Doch Shenati) reconciles everything at year-end, refunding overpayments with interest and indexation. Underpaying costs hefreshei hatzmada veribit (indexation plus interest) on the shortfall from the original due dates, which is why setting the instalments correctly beats ignoring them. This is general information, not tax advice.
Because your payslip withholding only covers your salary. If you also have foreign dividends, US-brokerage gains, foreign rental, or freelance income, nobody withholds Israeli tax on that slice, so the Israel Tax Authority collects it through mikdamot alongside your salary tax. The fix is not to ignore it but to make sure the instalments match the real income, up or down.
The Israel Tax Authority sets you a coefficient, a percentage of your turnover, and you apply it to each period's sales and pay that amount, usually bi-monthly. Because it tracks turnover, the instalment naturally rises in busy periods and falls in slow ones, but it is still an estimate trued up on your annual return.
No. File a bakashat hatama (request to adjust advances) with supporting documentation to reduce or zero your mikdamot when this year's income is genuinely lower than the basis the Tax Authority used. It is the designed mechanism, so you are not stuck pre-paying on income you no longer have. The flip side also applies: if your income rose sharply, you can voluntarily pay more to avoid an interest charge on a large year-end shortfall.
At year-end the annual return (Doch Shenati) reconciles your real tax against what you pre-paid. If you fell short you pay the difference plus hefreshei hatzmada veribit (indexation plus interest), calculated from the original instalment due dates to the day you pay. It is not a flat fine, but it grows the longer the shortfall sits, so a correctly set instalment is cheaper than a too-low one you true up a year later.
Only on the foreign income it actually exempts. While a foreign income such as foreign dividends, foreign rental, or foreign gains is genuinely exempt under the new-resident rules, there is no Israeli tax to pre-pay on it, so no mikdama for that slice. But your Israeli-source income, such as your Israeli salary, an Israeli freelance client, or an Israeli rental, is taxable from day one and can trigger mikdamot immediately. From 1 January 2026 even exempt foreign income is reportable, so your filing duties continue regardless.
No. Mikdamot is purely about when Israel collects tax on income that has no Israeli withholder. It does not decide what your US holdings are or how the IRS treats them. The separate US-side PFIC regime governs what you should hold: a US citizen or green-card holder who buys non-US pooled funds such as Israeli ETFs, a keren hishtalmut, or a kupat gemel triggers the punitive PFIC rules (Form 8621, the section 1291 method). Mikdamot does not change that, so US persons should not solve a mikdamot cash-flow worry by buying Israeli pooled funds.
Back home your employer or broker withheld and remitted automatically (US W-2 or UK PAYE), mainly on salary, using tax tables applied for you each payday. With mikdamot you pay it yourself through your tik at the Israel Tax Authority, on income that has no Israeli withholder: foreign dividends and gains, foreign rental, freelance billing, and self-employment turnover. The amount is set by a coefficient on turnover for the self-employed, or based on your last assessed return for everyone else, and paid usually bi-monthly. If it is too high you file a bakashat hatama to reduce or zero it, and if it falls short you pay the shortfall plus indexation and interest from the due dates.
