You Landed in October: How a Part-Year Israeli Tax Year Actually Works

Why does an October landing leave money sitting with the Tax Authority?

Because Israeli payroll withheld as though your first three months were your whole year. Israel taxes on an annual basis and withholds monthly, and the monthly bands are exactly the annual bands divided by twelve². Nine months you were not here still count as part of your tax year, and the annual return is where that gets corrected.

Then a second clock runs against the first. Your home-country tax year almost certainly does not close on 31 December alongside Israel's, so the same October-to-December months are counted twice, differently, by two systems that never talk to each other. Almost every new oleh is blindsided by this the first time an accountant asks which year a payslip belongs to and the honest answer is "both, in different countries."

How does Israeli payroll decide what to withhold each month?

It takes the month in front of it and taxes that amount as though it were one twelfth of a full year at that level. The 2026 monthly bands are the annual bands divided by twelve: ₪7,010 a month is ₪84,120 a year, ₪10,060 is ₪120,720, ₪19,000 is ₪228,000². Your employer applies the declaration on your טופס 101 (tofes 101) to each run⁴, and nothing in that run knows you were still packing boxes in March.

That is the whole mechanism. The withholding is a forecast that assumes twelve identical months, and a stub year falsifies the forecast the moment it begins. The reconciliation you may be used to happening inside payroll happens in Israel as a separate annual filing that you have to start yourself.

The size of the gap depends entirely on which month you landed. The table below runs one salary, ₪20,000 a month gross, through four arrival months at 2026 bands and credit-point values^°23, giving 2.25 basic credit points plus the first-year oleh point in every month worked.

Two things fall out of that table. A full twelve months of steady salary needs no correction at all, because the forecast was right. And the largest refund in shekels belongs to the mid-year arrival, not the latest one: by October you simply had less tax taken in the first place, even though the proportion taken in error is highest.

What happens to your credit points in a stub year?

They are counted per month, and the count starts at your תעודת עולה (Teudat Oleh), not at your first payslip. In 2026 one נקודות זיכוי (Nekudot Zikui) is worth ₪242 a month, ₪2,904 for a full year, and the basic entitlement for a resident is 2.25 points³.

The oleh addition runs on a 54-month ladder from the teudat oleh. For olim arriving from 2022 it is one twelfth of an annual point per month for the first 12 months, then a quarter of a point per month for 18 months, then a sixth for 12 months, then a twelfth for the last 12⁴. Three facts about that ladder matter in a stub year:

• What accrues. Only months on or after your teudat oleh. Land on 12 October and your first Israeli tax year contains three ladder months, not twelve.
• What is lost. The clock does not wait for you to find work. Ulpan, job-hunting and unemployment all burn ladder months at the same rate as a salaried month, and the richest tranche, the quarter-point months, sits in months 13 to 30 whether or not you have income to apply it to. Regular military service and post-secondary study are the two periods that do not count against the clock⁴.
• What carries. The ladder carries; the value does not. A credit point reduces tax due³, so if a very short stub year leaves you with less tax than your points are worth, the surplus has nothing left to reduce.

Here is the part a lifelong Israeli never meets. Someone born here who worked three months and was out of work for nine was still an Israeli resident for all twelve. You were resident for three. How many months of the basic 2.25 points a part-year resident is granted on the annual return is the single question that most changes your number, and it turns on your residency start date rather than your employment start date. The table above takes the conservative reading and counts points only for months worked, so if your accountant obtains more months than that, your refund is larger than the table shows, never smaller. Bring your aliyah date to that conversation.

Israeli treatment: the tax year closes on 31 December whatever your landing date

Israel gives you no partial-year return. The tax year is the calendar year, the annual bands apply to the whole of it², and a stub year is simply a calendar year in which you happened to have income for part of the time. There is no Israeli equivalent of a split-year election that shortens the year to fit your arrival.

Separately, and this is a different rule that people routinely merge with the one above, new residents have a ten-year exemption on foreign-source income, and the reporting position attached to it changed for years affected from 1 January 2026: the exemption from tax is one thing, and being required to report is another⁶. Your Israeli salary is Israeli-source and sits outside that exemption entirely.

Home-country treatment: your other tax year does not close in December

For most origins it closes somewhere else in the calendar, which is what turns one Israeli stub year into two home-country filings. The exception is the United States, whose year runs with Israel's, and which instead keeps you filing on worldwide income for life⁸.

Treaty treatment: what a treaty does and does not do to a stub year

No treaty merges two tax years. A double taxation convention allocates taxing rights between two countries and provides relief where both would otherwise tax the same income; it does not move a month from one country's year into another's, and it does not shorten Israel's calendar year to match your landing date. Relief is computed inside each return separately, on that return's own year.

For US-citizen olim there is a further wrinkle worth knowing before you meet a preparer. The US-Israel income tax convention and its technical explanation are published in full by the IRS⁹, and the convention contains a saving clause preserving each country's right to tax its own citizens broadly as if the treaty had not entered into force. In practice that means the relief mechanism on your US return, whether the exclusion or the foreign tax credit, does the work rather than the treaty itself. That choice is a long-lived one and is covered separately.

For UK, South African, Canadian and Australian olim the pressure point is different. Your home-country obligation usually ends through domestic residence rules rather than through treaty relief¹³, which is why the date you ceased to be resident there matters more to your first filing than any treaty article does.

Worked example: an October landing at ₪20,000 a month

You receive your teudat oleh on 12 October 2026 and start work on 1 October at ₪20,000 gross a month. Three payslips land in 2026.

• What payroll withheld. Monthly income tax on ₪20,000 under the 2026 bands is ₪3,226 before credits². Your 2.25 basic points plus the first-year oleh point come to about ₪565 a month³⁴, so about ₪2,661 left each payslip. Over three months: ₪7,983, roughly $2,313 at the IRS yearly average rate of 3.451 shekels per dollar for 2025^°11.
• What the annual return computes. Your 2026 Israeli income is ₪60,000, which sits entirely inside the 10% annual band that runs to ₪84,120². That is ₪6,000 of tax, less about ₪1,695 of credit points for the three months, leaving roughly ₪4,305 due, about $1,247.
• The gap. About ₪3,678, roughly $1,066, or 46% of everything withheld. Nothing about that number is unusual; it is what happens when a twelve-month forecast is applied to a three-month year.

Now the cross-border half, which the Israeli arithmetic above cannot see. If you are a US citizen, that same ₪60,000 goes on a 2026 US return in dollars¹¹, and the Israeli tax you claim relief for is the tax you actually end up paying, not the ₪7,983 that left your payslips. Claiming relief on the withheld figure and then receiving the ₪3,678 back from Israel leaves the two returns disagreeing. The automatic 2-month extension to 15 June is the standard way to buy time for the Israeli position to settle first⁷.

How do you claim the refund, and how far back can you go?

You claim it by filing, and you can reach back up to six years after the end of the tax year. A claim is made on טופס 135 (tofes 135), the shortened annual return, online or on paper, and a claim for tax year 2020 has to be in by the end of 2026¹. Refunds are paid with indexation differentials and 4% annual interest¹, so an old year is not worth less for having waited, only riskier for running out of time.

1. Collect a טופס 106 (tofes 106) from every Israeli employer for each year you are claiming. It is the annual summary of what you were paid and what was withheld, and it is the document the return is built from.
2. Check your teudat oleh date against the credit-point months your employer actually applied⁴. A late Form 101 is one of the most common reasons a stub-year refund is larger than expected.
3. File the return with the Israel Tax Authority for each year separately⁵. Years do not combine, and an unclaimed year does not roll into the next one.
4. If you also file a US, UK or South African return, sequence them. Settle which home-country year each Israeli payslip belongs to before either return is submitted.

What do newcomers get wrong about a stub tax year?

• Waiting for the refund to arrive by itself. Israeli payroll has no reconciliation step that pays you back. Nothing happens until a return is filed¹.
• Assuming the credit-point clock starts with the job. It starts with the teudat oleh⁴, so six months of ulpan before your first payslip are six months off the ladder, not six months banked.
• Treating the ten-year foreign-income exemption as covering the Israeli salary. It covers foreign-source income⁶. Your Israeli salary is Israeli-source and is taxed normally from day one.
• Filing the home-country return first and the Israeli one later. The Israeli number is the one that changes when you file, so a home-country return built on the withheld figure rather than the final figure will need revisiting⁷.
• Confusing a mid-year תיאום מס (Teum Mas) with the annual return. Tax coordination adjusts what is withheld going forward when you hold more than one job. It does not reconcile a year that has already closed; only the דוח שנתי (Doch Shenati) does that¹.
• Letting a year expire. Six years after the end of the tax year is a hard edge, and olim who arrive mid-year and file nothing for three or four years often discover the earliest and largest stub-year claim is the one about to lapse¹.

Israel taxes on an annual basis but withholds monthly, and the monthly bands are exactly the annual bands divided by twelve. If you landed in October and worked three months, payroll withheld as though that salary ran for a full year, so a stub year over-withholds by construction. On a ₪20,000 monthly salary the gap is roughly ₪3,678, about 46% of everything withheld. Nothing is repaid automatically: you claim it on Form 135, and you can go back up to six years after the end of the tax year, with indexation differentials and 4% annual interest added. Two things make this an oleh problem rather than a general part-year one. Your credit points are counted per month from your teudat oleh rather than from your first payslip, so months before aliyah generate nothing. And your home-country tax year probably does not end on 31 December with Israel's, so the same months land in two different tax years in two different countries.