Israeli Tax Returns

Israeli Tax Returns

Legal notice

This is a free information tool operated by an AI model. It explains the tax rules and helps you organise your own figures. All of its outputs are produced automatically by an AI model, with no involvement, review, or approval by a tax adviser or accountant. The output is not a tax opinion, not a return prepared by a licensed representative, and not professional advice, but a general calculation and explanation only: it does not examine the full extent of your income or your complete documents. An AI model may err, omit data, or present a wrong conclusion.

Any form or text this tool produces is an automatic draft for your personal preparation only, and is not a filed return. Responsibility for reporting and for paying the tax is yours, the binding computation is the Tax Authority's, and representation before the Tax Authority is reserved to those permitted by law. This tool is not a substitute for advice that takes account of the particular circumstances and needs of each person. Consult a tax adviser or accountant before filing or paying. All use of its output is the user's sole responsibility.

Instructions

Step 1: Identify the Return Type

Determine which tax return or report the user needs to prepare. Israeli tax law requires different forms for different situations:

Ask the user:

• Which return type do they need?
• Tax year (shnat mas) being reported
• Entity type: individual (yachid), sole proprietor (atzmai), or company (chevra)
• Whether they have a CPA (roeh heshbon) handling submission

Step 2: Annual Individual Tax Return (Form 1301)

Form 1301 is the main annual income tax return for individuals and non-corporate business owners. It covers all income sources for the calendar year (January 1 to December 31).

Who must file Form 1301: (mandatory-filing triggers are set by the Income Tax Regulations (Exemption from Filing a Return), 1988, under Section 131(a) of the Ordinance, a salaried employee is exempt only if they stay under every threshold below)

• Self-employed individuals (osek murshe or osek patur)
• Individuals whose annual salary exceeded the Regulation 134A filing-exemption ceiling. Two different ceilings get conflated here and they are not the same number. For tax year 2025 the salary ceiling in Addition A is 723,000 NIS; separately, Regulation 3(a)(8) withdraws the exemption from anyone whose income is chargeable to surtax under Section 121B, at 721,560 NIS. Either one crossed means a return is due.
• Individuals with income from multiple employers
• Individuals with foreign income or assets abroad exceeding reporting thresholds (including a foreign securities/brokerage account)
• Anyone who received capital gains during the tax year
• Individuals with rental income above the exempt threshold; in particular, annual residential rent above 375,000 NIS requires a return even on the 10% track (below that, the 10% track can be settled without a full return)

All eight Regulation 134A filing-exemption ceilings for tax year 2025 are tabulated in references/form-guide.md. Crossing any one of them removes the exemption.

A separate exemption from filing the return online (Section 131(b2)(4)) applies below 95,820 NIS for an individual or 191,640 NIS for a couple, tax year 2025. That is an exemption from the online channel, not from filing.

Main sections of Form 1301: personal details; employment income (from Form 106); business/profession income (Appendix Aleph / Form 1320); rental income and chosen track; capital and investment income; foreign income (Appendix 1327); deductions and credits (pension Sections 45A/47, donations Section 46, life insurance); and nekudot zikui (Step 3).

Key appendices to prepare:

• Form 1320 (Appendix Aleph): Profit and loss statement for self-employed
• Form 1321: Calculation of non-business taxable income
• Form 1322/1325: Capital gains from securities (see Step 7)
• Form 1327: Foreign income and assets declaration
• Form 1343: Depreciation and amortization schedule
• Form 6111: Standardized financial statements (if turnover > 300,000 NIS, see Step 5)

Rental income tax tracks: Israeli law offers three options for taxing residential rental income:

Step 2.5: Short Return for Salaried Refund-Seekers (Form 135)

Form 135 (דוח שנתי מקוצר, the short annual return) is the common entry point for salaried employees who are not required to file a full Form 1301 but want to claim a refund. Typical cases: nekudot zikui that the employer did not apply, a mid-year job change, donations under Section 46, or pension contributions that were never credited.

• A salaried filer who only wants a refund usually files Form 135, not the full
• Refund-claim window: under Section 160 of the Income Tax Ordinance, a refund can be claimed for up to 6 years back. A filer in 2026 can still claim refunds for tax years 2020-2025.
• If the person has business income, foreign income, capital gains, or crosses the mandatory-filing thresholds, they must file the full Form 1301 instead.

Step 2.6: Havraa-Day Reduction on Form 106 (Fields 011/012, tax years 2024-2025 only)

For tax years 2024 and 2025 only, temporary legislation reduced employees' convalescence pay (dmei havra'a). It produces a value in Form 106 field 011/012 and at line 60 of Form 1301 for those two years, and those are exactly the returns being filed during 2026. It is informational, not a deduction and not a credit: the amount was already netted out of the gross salary in field 158, so entering it as a Part YB deduction double-counts the benefit and understates tax. A home or domestic employer is exempt from the reduction. The law was not renewed and expired with tax year 2025, so a 2026 form carrying such a value should be questioned rather than transcribed. Amounts, the half-day track, and the circular reference are in references/form-guide.md.

Step 3: Nekudot Zikui (Tax Credit Points) Calculation

Each nekudot zikui point reduces the annual tax liability by 2,904 NIS (2026, 242 NIS/month). Points reduce the tax itself, not taxable income, and cannot take the liability below zero.

The full schedule, with every category and every band, is in references/credit-points.md. Read it before quoting a number. The summary below is the shape of the calculation, not a substitute for the table.

Section 44 institution credit (not a credit point): where the filer paid to maintain a child, spouse, or parent who is completely paralysed, permanently bedridden, blind, or not of sound mind in a special institution, the credit is 35 percent of the part of the payments exceeding 12.5 percent of taxable income.

Section 11 yishuv mutav (not a credit point): a percentage discount on tax on personal-exertion income, capped at an annual ceiling. The rate and the ceiling differ per yishuv and change annually. Read the row for the specific yishuv in chapter H of the ITA deductions booklet; never quote a rate from memory.

Calculation example: A married woman (2.75 points) with two children aged 3 and 7 in the tax year: age 3 gives 3.5 points, age 7 gives 2.0 points for the mother. Total 2.75 + 5.5 = 8.25 points = 8.25 x 2,904 = 23,958 NIS annual tax reduction.

Step 3.1: Aliyah and Return Incentive (temporary provision, in force 31.3.2026)

Chapter D of the Economic Efficiency Law 2026 exempts an oleh chadash or toshav chozer vatik who arrived in Israel between 5 November 2025 and 31 December 2026 from tax on personal-exertion income (business and salary) produced in Israel, up to an annual ceiling that runs 600,000 NIS in 2026, 1,000,000 in 2027 and 2028, 350,000 in 2029, and 150,000 in 2030. It is given in addition to every other relief such a person has, including Section 35 credit points. The ITA implementing circular had not been published as of the 2026 deductions booklet, so confirm the detailed conditions before relying on them. Full table and citation in references/credit-points.md.

Step 3.5: Pension and Donation Credits (Sections 45A, 47, 46)

Three benefits that are among the most commonly missed on a return, and the two most common sources of a salaried refund claim.

• Section 45A pension credit: 35 percent of the qualifying pension contribution, reducing tax directly. For an employee the qualifying deposit is 7 percent of hachnasa mezaka, and hachnasa mezaka from employment is capped at 9,700 NIS/month for 2026, so the maximum credited deposit is 679 NIS/month. An amit mutav has a separate track whose 2026 ceiling the Tax Authority publishes as 19,400 NIS/month.
• Section 47 pension deduction: reduces taxable income rather than tax. A self-employed filer can deduct up to 11 percent of annual business income within the qualifying ceiling; employee contributions above the 7 percent 45A threshold can qualify here. The same shekel cannot be counted under both.
• Section 46 donation credit: 35 percent for individuals (23 percent, the corporate rate, for companies), only to an institution holding a valid Section 46 recognition. Minimum floor 207 NIS applied to the year's COMBINED donations, not to each donation separately, which is the point most often got wrong. Ceiling is the lower of 10,354,816 NIS (2026) or 30 percent of taxable income; the excess carries forward 3 years.

Worked examples, the self-employed 5.5 / 11 / 16.5 percent structure, and the documentation requirements are in references/form-guide.md.

Step 3.7: Return-Preparation and Professional Fee Deduction (Section 17(11))

Fees paid to a CPA or tax advisor for preparing the return and handling the tax matter, including representation before the pakid shuma and in appeals, are deductible under Section 17(11), and are claimable by salaried employees too, not only the self-employed. For a pure salaried filer it is a contested area the assessor may disallow, so document it and have a CPA claim it: do not flatly tell a salaried filer the fee is non-deductible. The fee is deductible in the tax year it was actually paid, which is usually the year after the year the return reports. There is no dedicated Form 1301 field for it. Do NOT reduce field 158, the gross-salary line the Tax Authority cross-checks against Form 106. Carve-outs and placement detail are in references/form-guide.md.

Step 4: Income Tax Brackets and Surtax

Apply the progressive income tax rates to taxable income. Brackets for 2026 (brackets 1-2 and 6 frozen at 2025 values; brackets 3-5 expanded by the Economic Efficiency Law 2026 (Amendment 288 to the Income Tax Ordinance), approved March 31, 2026, retroactive to January 1, 2026):

Note the last two rows: 47% applies to every shekel above 560,280 and does not stop at 721,560. The surtax is charged ON TOP of the 47%, which is why the effective top rate is 50% and not 3%.

Surtax (mas yesafim), two-tier system from 2026:

• Employment and active income: 3% above 721,560 NIS (effective top rate: 50%)
• Capital and passive income (dividends, interest, rent, capital gains): 5% above 721,560 NIS (3% base + 2% additional surcharge)
• From 2026, Mas Shevach on investment properties is included in the surtax income calculation

Corporate tax rate: 23% flat rate on taxable profits for companies (Chevra).

Closely held companies (Chevra Me'atim): Subject to a 2% annual tax on accumulated undistributed profits unless at least 6% of accumulated profits are distributed as dividends.

Self-employed additional levies: self-employed individuals also pay Bituach Leumi and health tax on business income, calculated separately from the income tax return, though amounts paid during the year may affect advance-payment reconciliation.

Step 5: Financial Statements Attachment (Form 6111)

Required for any business (individual or corporate) with annual turnover exceeding 300,000 NIS (including VAT).

Form 6111 reports financial data in the Tax Authority's standardized codes. Section A is profit and loss (revenue, cost of sales, operating expenses, financial items, depreciation, net profit, tax adjustments); Section B is the balance sheet (assets, liabilities, equity). All amounts in NIS, using the item codes published at misim.gov.il, matching the audited statements exactly, submitted via SHAAM. It is usually produced by the CPA's accounting software (Hashavshevet, iCount, Rivhit), which exports Form 6111 directly.

Step 6: Employer and Supplier Reports (Forms 126 and 856)

Form 126 (Annual Employer Salary Report): employers file Form 126 by April 30 summarizing each employee's gross salary, tax withheld, Bituach Leumi and health tax, pension and keren hishtalmut contributions, benefits in kind, and exempt payments such as severance up to the exempt ceiling (dmei havra'a / convalescence pay is taxable salary, not an exempt payment). They must also issue Form 106 (annual salary summary) to each employee by March 1.

Form 856 (Annual Supplier Payments Report): businesses report payments to non-employee recipients (freelancers, contractors, consultants, landlords) by April 30, listing each supplier's ID, gross payments, tax withheld at source, and payment type.

See references/form-guide.md for the full per-field breakdown of both forms.

Step 7: Capital Gains Reports

Real Estate Capital Gains (Mas Shevach): When selling real property in Israel, the seller must file a Mas Shevach declaration with Reshut HaMisim (Israel Tax Authority) via the misim.gov.il portal or real estate taxation offices (Misrad Misui Mekarkein) within:

• 30 days from the sale date (standard)
• 40 days from the sale date (if requesting an exemption)

Calculation:

Sale price
- Original purchase price (adjusted for inflation via CPI index)
- Allowable deductions (purchase tax paid, legal fees, agent commission, renovation costs with receipts)
= Real capital gain (shevach re'ali)
x 25% tax rate
= Mas Shevach payable

Single apartment exemption (ptur dira yechida): Full exemption from Mas Shevach if ALL conditions are met:

• This is the seller's only residential property in Israel
• Owned for at least 18 months
• Sale price is below the exemption ceiling (5,008,000 NIS, 2024-2027, frozen)
• Seller is an Israeli resident
• Partial exemption applies proportionally above the ceiling

Linear method (shita liniarit): For properties purchased before January 7, 2014, only the portion of gain attributable to the period after that date is taxed at 25%. The pre-2014 portion may be exempt or taxed at a lower historical rate. A phase-out of this benefit was proposed by the Ministry of Finance in 2024; not yet enacted into law as of April 2026.

Securities Capital Gains (Forms 1322/1325): Capital gains from selling stocks, bonds, mutual funds, and other securities:

• 25% tax rate for individuals on traded securities
• 30% tax rate if the seller holds 10% or more of the company
• Report within 30 days of the sale, or include in the annual Form 1301
• Losses can offset gains from the same category within the tax year
• Carry forward of capital losses to future years (capital losses only offset capital gains, not ordinary income)

Step 8: Advance Tax Payments (Mikdamot)

Self-employed individuals and businesses are typically assessed advance income tax payments (mikdamot) by the Tax Authority. These are periodic prepayments against the expected annual tax liability.

The Tax Authority sets a percentage rate from the business's prior-year returns (industry statistics and projected turnover for a new business), applied to bi-monthly turnover excluding VAT, due by the 15th of the month after each bi-monthly period: 15 March, 15 May, 15 July, 15 September, 15 November, 15 January.

At year end the total paid is reconciled on Form 1301 or 1214 against the actual liability: an excess is refunded (hechzer mas), a shortfall is owed plus possible interest.

Adjusting the rate: if the business's income changes significantly (revenue drops sharply, a large new contract, or a change in business activity), request a rate adjustment (shinui shiur mikdamot) from the Tax Authority.

Step 9: Filing via SHAAM Online Portal

All returns are submitted electronically via the Tax Authority's online system (SHAAM):

Register at misim.gov.il with a teudat zehut or company number and two-factor credentials. Log in, pick the form and tax year, enter or upload the data, review the calculated liability, submit for a confirmation number, then pay via the payment portal (bank transfer, credit card, or post-office reference).

CPA authorization (yipui koach) is granted by the taxpayer in the SHAAM portal, per client and per year, and lets the CPA submit returns, view assessments, and correspond with the Tax Authority.

Filing extensions:

• Form 1301: see Step 1 for the 2025-return deadlines. CPA clients usually get automatic extensions under the association quota agreement, often to 30 September or later
• Form 1214: standard deadline 31 May, extensions available
• Request any extension BEFORE the original deadline

Examples

Example 1: Freelancer Filing Annual Tax Return (Form 1301)

User says: "I'm a freelance developer (osek murshe), I need to prepare my annual tax return for 2025"

Actions:

1. Collect income details: Total business revenue from invoices, any employment income (Form 106 from employer), rental income, investment income
2. Prepare Appendix Aleph (Form 1320): List all business expenses (office rent, equipment, software subscriptions, internet, phone) to calculate net business profit
3. Calculate nekudot zikui: Male resident (2.25) + 2 children aged 4 and 8 (2.5 + 1.0) = 5.75 points = 16,698 NIS credit
4. Apply income tax brackets to total taxable income
5. Subtract nekudot zikui credit from tax liability
6. Reconcile against mikdamot (advance payments) made during the year
7. Prepare Form 6111 if turnover exceeds 300,000 NIS
8. Result: Net tax due or refund amount, ready for SHAAM submission

Example 2: Company Filing Corporate Tax Return (Form 1214)

User says: "Our company needs to file the annual report for the most recently closed tax year"

Actions:

1. Gather audited financial statements (profit and loss, balance sheet)
2. Prepare Form 6111 (standardized financial statements attachment)
3. Calculate taxable income: Net profit + non-deductible expenses (fines, entertainment above limits, excess car expenses) - exempt income
4. Apply 23% corporate tax rate
5. Reconcile against advance payments (mikdamot) made during the year
6. Check closely held company rules: if applicable, verify 6% dividend distribution requirement to avoid 2% accumulated profits tax
7. Prepare Form 126 (employer salary report) and Form 856 (supplier payments) as companion filings
8. Submit all forms via SHAAM by May 31

Example 3: Real Estate Capital Gains Declaration (Mas Shevach)

User says: "I just sold my investment apartment for 2.8 million shekels, I bought it in 2018 for 1.6 million"

Actions:

1. Determine if single-apartment exemption applies (investment apartment = likely not the only property, so no exemption)
2. Calculate real gain: 2,800,000 - 1,600,000 = 1,200,000 NIS gross gain
3. Adjust for inflation: Apply CPI index change from purchase date to sale date
4. Deduct allowable expenses: purchase tax (mas rechisha) paid, legal fees, agent commission, documented renovation costs
5. Calculate Mas Shevach: Real gain x 25% = tax payable
6. Prepare declaration for filing within 30 days of sale
7. The buyer also files a Mas Rechisha declaration (purchase tax) independently
8. Result: Mas Shevach liability with supporting calculation breakdown

Example 4: Calculating Advance Tax Payments (Mikdamot)

User says: "I started a new consulting business, how much mikdamot should I expect to pay?"

Actions:

1. Determine business type and projected annual turnover
2. For new businesses, the Tax Authority assigns an initial percentage based on industry type and projected income
3. Calculate bi-monthly payment: (bi-monthly revenue) x (assigned percentage rate)
4. Explain the 6 bi-monthly payment dates (March 15, May 15, July 15, September 15, November 15, January 15)
5. Note that the rate can be adjusted mid-year if actual income differs significantly from projections
6. At year end, total mikdamot paid will be reconciled against actual tax liability on Form 1301
7. Result: Estimated bi-monthly payment schedule with option to request rate adjustment

Bundled Resources

References

• references/form-guide.md - Forms 1301, 1214, 126, 856, 6111, 1322, 1325: who files, deadlines, key fields. Consult for a specific form or to decide which forms apply.
• references/credit-points.md - The full nekudot zikui schedule: every child age band, oleh, returning resident, discharged soldier, both combat-reserve regimes, netul yecholet, Section 44, Section 11. Consult before quoting any credit-point number.
• references/tax-brackets-credits.md - 2026 brackets (1-2 and the 47% band frozen at 2025 values, 3-5 widened for 2026), nekudot zikui values and categories, surtax thresholds, corporate rates. Consult for any tax calculation.

Gotchas

• Form 1301 for tax year 2025, filed in 2026: 30 June online, 29 May on paper. April 30 is a legacy paper baseline, not the online deadline, and April 15 is American. Filers represented by a CPA get later extensions under the CPA-association quota agreement, often 30 September or later.
• Individuals file Form 1301, not a 1040. US form numbers and fields do not exist here.
• Capital gains go on a separate schedule with their own rates (25% financial assets, up to 50% on real estate by holding period and property count). Do not apply one blanket rate.
• The child credit-point schedule has SIX age bands, not three, and Form 101 part H has a separate box for each. A one-year-old is worth 4.5 points, not 2.5: quoting the flat "ages 1-5" band understates a parent's credit by 5,808 NIS. From age 6 the mother gets 2.0 and the father 1.0, so a single "per child" figure is wrong for one of them whichever you pick.
• Combat-reserve points (Section 39B) run to a maximum of 4.0, not 1.0, and they are counted on the PREVIOUS tax year's days. There are two band tables: one for 2026-2027 starting at 30 days, a different permanent one from 2028 starting at 20 days. Picking the wrong table, or capping at 1.0, can understate a heavy reservist by 8,712 NIS.
• A returning resident is not on the oleh credit-point track. Section 35(d) defines toshav chozer for this purpose as someone who resumed residency between 16.5.2010 and 30.9.2012 only. Telling a returnee they get "the same points as an oleh" invents an entitlement.
• Discharged-soldier points (Section 39A) are worth up to 2.0 points a year for three years and are routinely never claimed, because nothing on the return prompts for them. Ask.
• Nekudot zikui must be claimed annually and vary by status (marital, children, new oleh, discharged soldier, combat reservist). Do not assume a default count.
• From 2026 Mas Shevach on a non-exempt investment property counts toward surtax income (5% above 721,560 NIS). Treating the two as separate under-reports the liability.
• Return-preparation fees are deductible under Section 17(11) for SALARIED filers too, not only the self-employed. There is no dedicated Form 1301 field: keep the invoice and attach an explanation.
• The havraa-reduction figure on Form 106/1301 (field 011/012, "מחיר יום ההבראה שהופחת ממשכורת העובד", tax years 2024-2025 only) is informational: it was already netted out of gross salary and is not income to the employee. Agents reasoning from the form's visual structure may wrongly treat it as a Part יב deduction and mis-state tax.

Reference Links

Troubleshooting

See references/troubleshooting.md.