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6 November 2013

Taxation of employment income - part 6 - Bituach Leumi

In addition to Income Tax, Israel levies Bituach Leumi (National Insurance or Social Security) on earned income (and certain passive incomes).

To all intents and purposes, this is another tax, although there are certain social benefits that accrue from making regular payments (e.g. maternity pay, disability pay, pension etc).

Bituach Leumi is calculated on a monthly basis, not on a yearly basis. There are also virtually no exemptions for salaries.

There are two rates for Bituach Leumi. The lower rate (3.5%) is for salaries of up to NIS 5,297 per month. Salaries above this amount, and up to NIS 42,435 are taxed at the regular rate (12%). Any salary in excess of this amount is not subject to Bituach Leumi. The rates and bands are correct for 2013.

The employer is also required to pay a percentage of your salary towards Bituach Leumi, and is responsible for ensuring prompt payment of both employee and employer contributions to the Bituach Leumi authority.

If you have two or more employers, the main employer will calculate the Bituach Leumi as above. All other employers are required to deduct at the full rate.

That is fine provided that your main job pays more than the NIS 5,297 per month. If they pay less, you can ask Bituach Leumi to issue a Teum Bituach Leumi in order for the other employers to give you the rest of the lower rate. This is effective only going forward, and can be done online here.

If this has affected you in the past, you can also claim back overpayments using the same site, back to 2006 if need be. In both situations, you will need the Bituach Leumi file number of the employer - in general this is the 9 digit "mispar tik nicuyim" of the employer followed by "00".

The more extreme situation will be when the combined salaries exceed the NIS 42,435 limit. In this case, the Teum going forward cannot be filed online, but only by going direct to your Bituach Lejmi office. Refunds though can be claimed in the same manner.

For those who are both employed and self-employed, the general rule is that Bituach Leumi is calculated on the salary first, and only afterward on the self-employment income.

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