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25 November 2014

Are you due a tax refund?

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In a previous post, we considered who was required to file a tax return.

However, it could be that even if you are not required to do so, it will be on your interests - if you are due a refund. Any refund due to you is given back with the addition of interest (4% per annum) and linkage - all tax free. You can't get anywhere near that in the banks these days, and even the most successful investments would be hard-pressed to give you such a favourable post-tax return!

You are able to apply for refunds - which necessitates filing a tax return - up to six years in arrears. As such, any claim for a refund in respect of 2008 must be filed by 31 December 2014.

So, in what situations might you be due a refund? Here are some common examples (by no means an exhaustive list, but it covers most situations).

  • A change of jobs midway through the year, especially if there was a significant change (up or down) in salary.
  • You had a period of unemployment during the year. If you received unemployment benefit from Bituach Leumi, that income needs to be taken into consideration (Bituach Leumi deduct tax at source).
  • Similarly, a woman who took maternity leave during the year - the maternity pay is also taxable, and tax should have been deducted at source by Bituach Leumi. This is especially true if the maternity leave was extended beyond the period for which Bituach Leumi pay (14 weeks for a regular birth). A word of caution: the maternity pay is paid in one lump-sum for the entire period. So if the maternity period spans two years (e.g. birth between October and December), it could be that you were under-taxed.
  • You made donations to Israeli institutions, which you have not claimed tax relief for. A more detailed look can be found here.
  • You made private contributions (i.e. not via your salary) towards pension, life insurance and/or disability insurance. The classical example is life insurance premiums paid for your mortgage.
  • You did a Teum Mas. Typically, the tax office issues these on the basis that you will have paid at least the correct amount of tax - i.e. you have probably overpaid. Alternatively, you asked your second (+) employers to deduct the maximum rate of tax. See here for more details.
  • You did not claim your full tax credits. This might include for army serivce, higher education, new child (especially if born towards the end of the year), deferred credits for new olim etc. A more detailed post regarding credits can be seen here.
  • You have investments in the bank. There are many situations whereby the bank will have over-taxed you (through no fault of their own). You need to get the bank to provide you with forms 867, 867א+ב and 867ג.
In order to claim your refund, you need to present the tax office with supporting documentation - forms 106 from each employment, forms 867 for each bank account and other documentation to prove your claims (e.g. Teudat Oleh, certificate of completion of studies, certificate of completion of army service etc.). You also need to fill out either form 135 (2013 version) - the refund request for salaried people, or form 1301 (2013 version) - the full tax return, and hand everything into your local tax office. I would also recommend that you attach a copy of a check from the account that you want the refund paid into - the authorities no longer issue checks.

It is important to note that there are situations whereby you may actually owe tax. So I would strongly suggest that you get an accountant to look at the paperwork prior to submitting - once you have filed, you will have to pay the taxes that you owe - in addition to interest and linakge charges!