Income tax
Israel taxes employment income under the Income Tax Ordinance, on a calendar year. Employers withhold monthly using monthly brackets and credit points, and file Form 102 (tax and National Insurance) by the 15th of the following month.
| Annual taxable income (ILS) | Rate |
|---|---|
| 0 – 84,120 | 10% |
| 84,120 – 120,720 | 14% |
| 120,720 – 228,000 | 20% |
| 228,000 – 301,200 | 31% |
| 301,200 – 560,280 | 35% |
| 560,280 – 721,560 | 47% |
| Above 721,560 | 50% |
The top rate is 47% plus a 3% surtax above ILS 721,560. The 20% and 31% bands were widened for 2026, as PwC shows, but some calculators still use the 2025 bands. Confirm with the Israel Tax Authority before you build them into payroll.
Credit points. Each point is worth ILS 242 a month in 2026. Resident men get 2.25 points and resident women 2.75, with extra points for children, new immigrants, discharged soldiers, academic degrees and, for 2026–2027, combat reservists. Non-residents generally get none.
National Insurance and health tax
The National Insurance Institute (Bituach Leumi, NII) collects both National Insurance and health tax. A reduced rate applies up to 60% of the average wage.
| Monthly wage band | Employer | Employee |
|---|---|---|
| Up to ILS 7,703 | 4.51% | 4.27% (1.04% NI + 3.23% health) |
| ILS 7,703 – 51,910 | 7.6% | 12.17% (7% NI + 5.17% health) |
These are the rates after the 2025 increase; older guides show lower employee rates. Check the NII page before each tax year.
Residents, including resident foreigners, pay the standard rates. Non-resident foreign workers pay reduced rates for some branches only, generally with no health tax. The rates depend on status, so confirm them with NII.
Mandatory pension
The pension extension order requires at least 18.5% of the pensionable wage:
| Employer | Employee | |
|---|---|---|
| Pension | 6.5% | 6% |
| Severance component | 6% | – |
A study fund (keren hishtalmut), commonly 7.5% employer and 2.5% employee, is customary but not statutory.
Severance pay
Under the Severance Pay Law 5723-1963, an employee earns one month’s last salary per year of service, pro rata, after 12 months. It is due on dismissal and on certain resignations, such as for relocation, health or after childbirth. There is no cap. Severance is tax-exempt up to a ceiling per year.
Under a Section 14 arrangement, monthly severance contributions to a pension fund replace the statutory payment: 8.33% for full replacement, 6% for partial.
Wage payment rules
There is no wage protection system like those in the Gulf. Under the Wage Protection Law 5718-1958, monthly wages must be paid by the 9th of the following month, with a detailed payslip (tlush). Late payment triggers statutory late-wage compensation, and payslip breaches lead to fines.
Working time and leave
- Hours: 42 a week since 2018, or 8.6 a day on a five-day week.
- Overtime: 125% for the first 2 overtime hours a day, then 150%. Work on the weekly rest day is paid at 150%.
- Annual leave: under the Annual Leave Law, 12 working days on a five-day week (14 on a six-day week) in the early years, rising with seniority to about 20 (or 24) days. Check the per-year table in the law.
- Maternity leave: 26 weeks with 12 or more months’ service, 15 weeks otherwise. NII pays 15 weeks of maternity allowance, subject to contribution history. Dismissal is restricted during leave and for 60 days after.
- Recuperation pay (dmei havra’a): mandatory. For the 2026 recuperation year the private-sector rate is ILS 451.50 a day, up from ILS 418. Employees get 5 days in year 1, 6 in years 2–3 and 7 in years 4–10, with more after that.
Minimum wage
The full-time minimum wage is ILS 6,443.85 a month (182 hours), or ILS 35.40 an hour, from 1 April 2026. Lower youth rates apply.
Gotchas for foreign employers
- Mandatory pension and recuperation pay sit on top of NII. EOR quotes that show only NII understate cost.
- Employees called up for reserve duty (miluim) cannot be dismissed during and after service. NII reimburses wages, but the employer keeps paying and claims the money back.
- Foreign nationals need a work permit or visa, such as the B/1. Some sectors carry employer levies for foreign workers.
- A foreign company employing staff in Israel must register as an employer with the Tax Authority and NII and file Form 102 monthly, even without a local entity. The alternative is an Employer of Record.