Mas Hachnasa / Israeli Income Tax

Mas Hachnasa (מס הכנסה, literally 'income tax') is the Israeli personal income tax system, administered by the Israel Tax Authority (רשות המסים). Israel uses a progressive marginal rate structure applied to multiple income sources. 2024 marginal brackets for employment income (approximate): ₪0–₪84,480/year — 10%; ₪84,480–₪120,960 — 14%; ₪120,960–₪193,800 — 20%; ₪193,800–₪269,280 — 31%; ₪269,280–₪558,360 — 35%; above ₪558,360 — 47%. An additional 3% surtax ('mas yashir/hashlamah') applies to annual income above approximately ₪721,560 (2024). Key features: (1) Tax credits (נקודות זיכוי, 'credit points') — each credit point reduces annual tax owed by approximately ₪2,820 (2024); Israeli residents receive 2.25 base points; women receive an additional 0.5 points; single parents receive extra points; new immigrants (olim) receive significant credit point bonuses for up to 3.5 years; (2) Capital gains (רווחי הון) from publicly traded securities are taxed at a flat 25% (or 30% for 'substantial shareholders' holding 10%+ of a company); Bitcoin and crypto gains are treated as capital gains; (3) Rental income: first ₪5,654/month (2024) is exempt from tax; income above this is taxed at either the marginal rate or a flat 10% with no expense deduction; (4) Dividend income: 25% withholding tax on Israeli company dividends; (5) Self-employed individuals file an annual return and pay in quarterly advance installments ('mקדמות'). New immigrants (olim chadashim) receive a 10-year tax exemption on foreign-source income — a major financial incentive. The combination of Israeli income tax (up to 47% + 3% surtax), National Insurance (7%), and health tax (3.1-5%) makes the effective marginal rate for high earners potentially 60%+, highlighting the importance of maximizing Hishtalmut and approved pension contributions (which are pre-tax).

An Israeli software engineer earns ₪35,000/month gross (₪420,000/year). Their marginal bracket is 35%. After tax credits (2.25 credit points = ~₪6,345 reduction), their effective income tax rate is approximately 22-24%, or roughly ₪90,000-₪100,000/year in income tax. By maximizing Hishtalmut contributions (₪18,480/year employer + employee exempt from income tax) and pension contributions, they reduce taxable income significantly. Understanding the brackets helps with timing bonuses, stock option exercises, and property sales to manage tax exposure.