Israeli Payroll Calculator

Israeli Payroll Calculator

Instructions

Step 1: Gather Employee Information

Collect from user:

• Gross monthly salary (bruto) in NIS
• Tax credit points (nekudot zikui): Default 2.25 for male resident, 2.75 for female
• Pension arrangement: Yes/No, contribution percentages
• Employment type: Employee (sachir), Freelancer (atzmai)
• Age: Affects NI rates (under/over 18, retirement age)

Step 2: Calculate Income Tax

Apply progressive tax brackets to monthly gross salary:

1. Calculate annual equivalent: monthly_gross * 12
2. Apply brackets progressively (see references/tax-brackets.md)
3. Subtract tax credit value: credit_points * 242 NIS/month
4. Monthly tax = max(0, calculated_tax - credits)

IMPORTANT: Tax credits cannot create a negative tax (no refund through payroll).

Step 3: Calculate Bituach Leumi (National Insurance)

For employees:

• On first 7,122 NIS: 0.4% NI + 3.1% health = 3.5%
• On amount 7,123 to 49,030 NIS: 7.0% NI + 5.0% health = 12.0%
• Maximum insurable salary: 49,030 NIS/month

Step 4: Calculate Pension Deductions

If pension applies (mandatory for most employees):

• Employee: 6% of salary (up to pension ceiling)
• This amount is deducted from gross but provides tax benefits

Step 5: Calculate Net Salary (Neto)

Net = Gross
    - Income Tax
    - Bituach Leumi (employee share)
    - Health Tax (employee share)
    - Pension (employee contribution)
    - Other deductions (union dues, etc.)

Step 6: Calculate Employer Total Cost (if requested)

Employer Cost = Gross
    + Employer NI (~7.6%)
    + Employer Health (~3.45%)
    + Employer Pension (6.5%)
    + Employer Severance (6%)
    + Vacation accrual
    + Sick leave accrual

Step 7: Present Clear Breakdown

Present results as a payslip-style table:

CAVEAT: Always note "This is an estimate. Actual amounts may vary based on specific tax rulings, additional credits, or employer agreements. Consult a certified Israeli accountant (roeh cheshbon) for exact figures."

Examples

Example 1: Standard Employee

User says: "Calculate net salary for 20,000 NIS gross, male, no special credits" Result: Detailed breakdown showing approximately 15,800-16,200 NIS net

Example 2: Employer Cost

User says: "How much does it cost an employer to pay 15,000 NIS gross?" Result: Total employer cost approximately 19,500-20,000 NIS including all contributions

Example 3: Salary Comparison

User says: "Compare a 25,000 NIS offer with a 22,000 NIS + car offer" Result: Side-by-side comparison accounting for car tax benefit (shovi rechev)

Bundled Resources

Scripts

• scripts/calculate_payroll.py — Calculates Israeli gross-to-net salary with progressive income tax brackets, Bituach Leumi, health tax, and pension contributions. Supports employee and employer cost views. Run: python scripts/calculate_payroll.py --help

References

• references/tax-brackets.md — 2025 Israeli income tax brackets (annual and monthly) with progressive rates from 10% to 50%. Also referenced in Step 2 and Troubleshooting below. Consult when computing income tax or verifying bracket thresholds.
• references/bituach-leumi-rates.md — 2025 Bituach Leumi (National Insurance) and health tax rates for employees and employers, covering both the reduced bracket (up to 7,122 NIS) and full bracket (up to 49,030 NIS). Consult when calculating NI and health deductions in Step 3.
• references/credit-points.md — Israeli tax credit points (nekudot zikui) value and full eligibility table covering base credits, gender, new immigrants, children, single parents, and disability. Consult when determining a taxpayer's total credit points beyond the defaults in Step 1.

Gotchas

• Israeli income tax brackets (madregot mas) change annually. Agents may use outdated 2023 or 2024 brackets. Always verify the current year's brackets from the Tax Authority.
• Bituach Leumi has two separate rate tiers: a reduced rate on income up to 60% of the average wage, and a normal rate above it. Agents often apply a flat rate, missing this two-tier structure.
• Israeli payroll includes mandatory pension contributions (6.5% employee, 7.5% employer as of 2025). Agents may omit these or use the older 5.5%/6% rates.
• Overtime in Israel is calculated differently than in the US: 125% for the first 2 hours, 150% after that (not 1.5x for all overtime). Friday/holiday overtime starts at 150%.
• The "neku'dot zikui" (tax credit points) system is uniquely Israeli. Each point reduces tax by a fixed NIS amount per month. Agents may not know that women get an extra half-point, and new olim get additional points for 3.5 years.

Troubleshooting

Error: "Tax brackets may be outdated"

Cause: Tax brackets update annually (usually January 1) Solution: Verify current brackets at Tax Authority website. Skill uses 2025 brackets -- check references/tax-brackets.md for updates.

Error: "Credit points don't match"

Cause: Various life circumstances affect credit points Solution: Review full credit point table. Common additions: female (+0.5), new immigrant (up to +3), children, single parent, disabled.