The Israeli Tax System at a Glance
Israel's tax system can feel foreign at first - sometimes literally. But once you understand the core mechanics, you'll realize it shares a lot in common with the systems you left behind, with a few distinctly Israeli twists that actually work in your favor as a new oleh.
This article is educational content, not tax advice. For your personal situation, consult a licensed Israeli tax accountant (ro'eh cheshbon).
The Tax Year: January to December
Israel uses a calendar year for taxation - January 1 through December 31. This is straightforward for most olim. Your first tax year in Israel begins on the date you made aliyah, and your eligibility for certain olim benefits (like the 10-year foreign income exemption) is counted from that date.
Tax returns (if required) are filed the following year, with deadlines typically in May for individuals filing on paper and extended deadlines for those working through a licensed accountant.
Mas Hachnasa: Israeli Income Tax
Israeli income tax is called מס הכנסה (Mas Hachnasa) (literally "income tax"). It is levied by the Israel Tax Authority (Rashut HaMisim) on income earned in Israel. The tax is progressive, meaning the more you earn, the higher percentage you pay - but only on the portion above each bracket threshold.
The rate starts at 10% on the lowest income bracket and rises to 50% on very high earners. Most salaried employees will find their effective rate well below the top marginal rate, because progressive brackets mean each shekel is taxed at the rate for its bracket only.
How does your employer handle income tax in Israel?
If you're employed by an Israeli company, you'll never need to write a check to the tax authority. Your employer deducts your income tax every month through a system called ניכוי במקור (Nikui BaMakor) - withholding at source. The amount withheld is calculated based on your salary and your registered tax credit points (more on that below).
Your employer remits the withheld tax directly to the tax authority each month. This is why most salaried employees in Israel do not need to file an annual tax return - the system is designed so that withholding closely matches what you actually owe.
How do tax credit points reduce your tax bill?
Here is where Israel's system gets genuinely interesting. Every resident is entitled to a certain number of נקודות זיכוי (Nekudot Zikui) - tax credit points. Each point directly reduces the amount of tax you owe (not just your taxable income) by approximately 242 NIS per month in 2026.
Every resident starts with 2.25 base credit points. Women receive an additional 0.5 points. Olim receive extra points during their first few years - this is one of the most valuable financial benefits of aliyah and can reduce your monthly tax bill by hundreds of shekels. We'll cover this in detail in the next modules.
Who Needs to File a Tax Return?
Not everyone in Israel files an annual tax return. Salaried employees whose only income is from a single Israeli employer - and who have no foreign income or other complex situations - are generally exempt from filing. However, you may be required to file if you:
- Have income from abroad (including during your exemption period, once reporting is required)
- Are self-employed
- Have rental income above a certain threshold
- Had capital gains from selling investments or property
- Have multiple employers
As an oleh, the foreign income reporting rules changed significantly in 2026. We cover this in detail in the Tax Reform module.
What's Coming Up in This Module
Now that you have the lay of the land, the next two articles in this module go deeper into the mechanics:
- Income Tax Brackets - the exact 2026 bracket thresholds and how to calculate your actual tax liability
- Nekudot Zikui Basics - how credit points work, what you're entitled to as an oleh, and how they appear on your payslip
Israeli income tax (Mas Hachnasa) is progressive, running from 10% on the lowest bracket up to 50% on very high earners, and most salaried employees have it withheld each month by their employer through Nikui BaMakor (withholding at source), so they rarely deal with the tax authority directly or owe a large sum at year-end. Tax credit points (Nekudot Zikui) reduce the tax you owe directly rather than just your taxable income, worth roughly 242 NIS per point per month in 2026, with every resident starting at 2.25 base points and olim receiving substantial extra points for up to 42 months after aliyah. The tax year runs January to December, and your olim benefits, including the 10-year foreign income exemption, are counted from your aliyah date. You generally do not need to file an annual return if your only income is from a single Israeli employer, but you may have to file if you have foreign income, are self-employed, have rental income above a threshold, had capital gains, or have multiple employers. This is educational content, not tax advice; for your personal situation consult a licensed Israeli tax accountant (ro'eh cheshbon).
Not usually. Salaried employees whose only income is from a single Israeli employer, and who have no foreign income or other complex situations, are generally exempt from filing. The withholding-at-source system (Nikui BaMakor) is designed so that the tax deducted each month closely matches what you actually owe. You may still be required to file if you have income from abroad, are self-employed, have rental income above a certain threshold, had capital gains from selling investments or property, or have multiple employers.
Israeli income tax (Mas Hachnasa) is progressive. The rate starts at 10% on the lowest income bracket and rises to 50% on very high earners. Because the brackets are progressive, each shekel is taxed only at the rate for its own bracket, so most salaried employees find their effective rate well below the top marginal rate. The exact 2026 bracket thresholds are covered in the Income Tax Brackets article.
If you are employed by an Israeli company, you never need to write a check to the tax authority. Your employer deducts your income tax every month through withholding at source (Nikui BaMakor), calculated based on your salary and your registered tax credit points, and remits it directly to the Israel Tax Authority (Rashut HaMisim) each month. This is why most salaried employees in Israel do not need to file an annual return: the system is designed so that withholding closely matches what you actually owe.
Nekudot Zikui are tax credit points that reduce the amount of tax you owe directly, not just your taxable income. Each point is worth approximately 242 NIS per month in 2026. Every resident starts with 2.25 base credit points, women receive an additional 0.5 points, and olim receive extra points during their first few years, which can reduce your monthly tax bill by hundreds of shekels.
Israel uses a calendar year for taxation, January 1 through December 31. Your first tax year in Israel begins on the date you made aliyah, and your eligibility for certain olim benefits, such as the 10-year foreign income exemption, is counted from that date regardless of the month you arrive. Tax returns, if required, are filed the following year, with deadlines typically in May for individuals filing on paper and extended deadlines for those working through a licensed accountant.
Yes. The US taxes on citizenship, not residency, so you still owe the IRS after moving to Israel, while Israel taxes on residency. The two countries have a tax treaty, and the Israeli 10-year foreign income exemption means most US-source income, such as dividends, 401(k) distributions, and rental income, is not taxed by Israel during your exemption period. However, you still need to file both an Israeli return (if required) and a US federal return every year.
The UK uses a similar progressive income tax structure (20%, 40%, 45% bands). The key difference is that the UK personal allowance (£12,570) gives you a tax-free band at the bottom, while Israel instead uses credit points to reduce the tax owed. For UK olim who become non-UK-resident, UK tax obligations largely end on most income types, unlike US citizens who must file regardless of residence, and the Israel-UK tax treaty protects against double taxation on most income categories.
No. This is educational content, not tax advice. For your personal situation, consult a licensed Israeli tax accountant (ro'eh cheshbon). Note that the foreign income reporting rules for olim changed significantly in 2026, which is covered in detail in the Tax Reform module.
