2014 Payroll changes in Israel
Effective on January 2014’s salary, the following changes will take place:
1. Income tax
A. The income tax brackets and tax credit points value have not changed and remain the same as in 2013(as follows):
Monthly gross pay in shekels Tax rate
Up to 5,280 10%
From 5,281 to 9,010 14%
From 9,011 to 14,000 21%
From 14,001 to 20,000 31%
From 20,001 to 41,830 34%
From 41,831 to 67,630 48%
Every additional shekel 50% (tax on high salaries)
B. Tax credit points are worth 218 sh each.
C. Tax reduction for residents of approved settlements:
The % have been reduced in 2014 for all areas by 1%-2% and certain areas have been removed from the list of eligible for tax reductions under this section (pending a final review) namely: Bet Shean, Hazor Haglilit, Arad and Arava Tichona regional council.
D. Interest rates on loans to employees
the mandatory interest rate for 2014 on balances of loans to employees over 7,800 sh is 4.31%. For loans under 7,800 sh, the rate is the rise in the consumer price index.
2. Social Security
A. The rates for employees remain unchanged from 2013 and for employers the rate on the portion of salary over 5,453 sh was raised to 6.75% (from 6.5%).
B. The average wage was updated to 9,089 sh.
C. The minimum wage for paying Social Security remains unchanged at 4,300 sh.
D. The new maximum wage for paying Social Security is 43,240.
E. The new ceiling for the lower rate of Social Security and Health tax is 5,453 sh.
Tip: salaried employees who work for more than one employer, if you earn less than 5,453 sh (gross) at the first place of employment, sign a declaration accordingly and give to your second employer, so that you can utilize in full the lower rate.
Example: you earn 5,000 sh in your first job. You will be paying Social Security and Health tax at the lower rates 3.5%. Your second employer can continue to use the lower rate up to the lower rate’s ceiling (5,453 sh) based on your declaration. So you would have another 453 sh to utilize the lower rate, regardless of your salary. This is quite meaningful, as the higher rate is 12%! The declaration form can be downloaded here: https://www.btl.gov.il/forms/Employers_forms/Documents/t644.pdf
3. Mandatory pension rates
2014 is the last year of the 7 year Mandatory pension plan law that was initiated in 2008, of gradual increase in employee and employer contributions.
The rates are as follows:
employee – 5.5%
Employer – 12% (6% pension and 6% severance pay)
Total = 17.5%.
Note: If a work agreement or contract (individual or collective) exists that is more favorable, the agreement or contract takes precedence.
4. Foreign employees – deductions from pay
The maximum amounts that an employer can deduct from a foreign employee’s salary from Jan 2014 are as follows:
A. For medical insurance = 124.73 sh, but not more than 25% of his monthly pay.
B. For living quarters (room and board):
Area of residence Amount (in shekels)
If the living quarters are owned by the employer, the maximum amount that can be deducted is half of the sum listed in the above table. If the employer cannot present receipts for payments of rent to the regulator of foreign employees it is considered that the property is owned by him.
C. The employer is allowed to deduct from foreign employee’s salary for supplemental expenses, such as water, electricity and arnona (property tax) a maximum amount of 92.36 sh. (Nursing/care employees who are employed in their employer’s home – the maximum amount is 79.41 sh.)
5. Additional changes
All salaried employees are required by law to fill out and submit a new 101 tax form (employee’s declaration) as well as a new 103 Social Security declaration. The 101 tax form has the date on the bottom left hand corner of the first page. This form was updated Dec 2013. Any prior forms are no longer valid.
The updated form can be found here: http://taxes.gov.il/TaxesFormsList/itc101_13.pdf
for employers who distribute pre-printed forms with the existing information from the payroll program; these have been approved by the Tax Authority.
Check to make sure all information is correct (name, address, kupat cholim, children under 19, whether spouse has income or not) check the relevant boxes in part Dalet and Heh, date and sign. If your bank account details are pre-printed make sure they are correct.