Israeli Tax Returns

Israeli Tax Returns

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:

| Form | Hebrew Name | Who Files | Deadline | Frequency | |------|-------------|-----------|----------|-----------| | 1301 | דוח שנתי ליחיד | Individuals, sole proprietors, freelancers | June 30 for online filers; 29 May 2026 for paper filers (CPA-represented filers get the later quota extension) | Annual | | 135 | דוח שנתי מקוצר | Salaried individuals filing a short return to claim a refund | Within 6 years of the relevant tax year (Section 160 refund window) | Annual / on demand | | 1214 | דוח שנתי לחברה | Companies (Chevra Ba'am, Chevra Pratit) | May 31 (5 months after tax year end), extensions available | Annual | | 126 | דוח מעסיק על משכורות | Employers reporting employee salaries and withholdings | April 30 | Annual | | 856 | דוח על תשלומים לספקים | Businesses reporting payments to suppliers/freelancers | April 30 | Annual | | 6111 | דוח כספי אחיד | Businesses with turnover above 300,000 NIS (incl. VAT) | Submitted with 1301 or 1214 | Annual | | Mikdamot | מקדמות מס הכנסה | Self-employed and businesses with advance payment assessments | 15th of the month after the period | Bi-monthly | | Mas Shevach | הצהרת מס שבח | Anyone selling real estate in Israel | 30 days from sale date (40 days if requesting exemption) | Per transaction | | 1322/1325 | דוח רווח הון מניירות ערך | Anyone with capital gains from securities sales | 30 days from sale (or annual with Form 1301) | Per transaction or annual |

The Form 1301 deadline moved later for the 2025 tax year (filed in 2026): online filers have until June 30, paper (non-online) filers until 29 May 2026. April 30 is the legacy paper baseline that older years used; state the online deadline explicitly, since most filers submit online. CPA-represented filers receive the later extension under the CPA association's quota arrangement with the ITA.

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 gross salary exceeded 721,560 NIS (the surtax / high-salary mandatory-filing threshold, frozen 2025-2027)
• 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 who received rental income exceeding the exempt threshold, AND in particular anyone whose annual residential rental income exceeds 375,000 NIS must file a return even when using the 10% track (below that, the 10% track can be settled without a full return)

Main sections of Form 1301:

| Section | Content | |---------|---------| | Personal details | Name, ID (teudat zehut), address, marital status, dependents | | Income from employment | Salary, bonuses, benefits-in-kind (from Form 106 provided by employer) | | Income from business/profession | Revenue, expenses, net profit (from Appendix Aleph / Form 1320) | | Income from rentals | Residential and commercial rental income, chosen tax track | | Income from capital and investments | Interest, dividends, capital gains | | Foreign income | All income sourced outside Israel (Appendix 1327) | | Deductions and credits | Pension contributions (Sections 45A and 47), donations (Section 46), life insurance | | Nekudot zikui (tax credit points) | See Step 3 for full calculation |

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:

| Track | Rate | Conditions | |-------|------|------------| | Exempt | 0% | Monthly rent below the exempt ceiling (5,654 NIS/month, 2025-2027, frozen, no longer indexed) | | Flat rate | 10% | On gross rent, no deductions allowed. Payment by January 31 of following year | | Marginal | Progressive rates (10%-50%) | Full deduction of expenses (depreciation, mortgage interest, maintenance). Filed with Form 1301 |

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

1301.

• 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 3: Nekudot Zikui (Tax Credit Points) Calculation

Each nekudot zikui point reduces the annual tax liability by 2,904 NIS (2025-2027, frozen, approximately 242 NIS/month). Calculate the taxpayer's total points:

| Category | Points | Notes | |----------|--------|-------| | Israeli resident (male) | 2.25 | Base entitlement | | Israeli resident (female) | 2.75 | Base entitlement (0.5 additional) | | New immigrant (oleh chadash) | 3.0 in year 1, 2.0 in year 2, 1.0 in year 3 | For 3.5 years from aliyah date | | Returning resident (toshav chozer) | Same as oleh chadash | After 10+ years abroad | | Child born during tax year | 1.5 | For each child born that year | | Children aged 1-5 | 2.5 per child | For each child | | Children aged 6-17 | 1.0 per child | For each child | | Child aged 18 | 0.5 | Last year of child credit | | Single parent | 1.0 | Divorced, widowed, or separated with custody | | Academic degree (BA) | 1.0 | Per year, for up to 3 years matching study duration (graduates 2023+). Graduates 2014-2022: 1 year only | | Academic degree (MA) | 0.5 | For 2 years after completion (graduates 2023+). Graduates 2014-2022: 1 year only | | Vocational certificate | 1.0 | Per year, for up to 3 years matching study duration (graduates 2023+). Graduates 2014-2022: 1 year only | | Disability (100% or blind) | 2.0 | Permanent | | Combat reserve soldiers | 0.5-1.0 | Based on reserve days (from 2026: 0.5 points for 20+ days, 0.75 for 45+ days, 1.0 for 60+ days) |

Calculation example: A married woman (2.75 points) with two children aged 3 and 7 (2.5 + 1.0 = 3.5 points) = 6.25 total points = 6.25 x 2,904 = 18,150 NIS annual tax reduction.

Step 3.5: Pension Contribution Credit (Section 45A) and Deduction (Section 47)

Pension contributions receive two separate tax benefits that must both be claimed on Form 1301. Missing either is one of the most common filing errors.

Section 45A: 35 percent income tax credit (zikui)

• Reduces tax liability directly by 35 percent of the qualifying pension contribution
• Applies to both employees and self-employed who deposit into a pension fund, insurance policy with a pension component, or kupat gemel l-kitzba
• Employee (sachir) ceiling: qualifying contribution up to 7 percent of eligible salary (capped at 23,232 NIS/month for 2026, so maximum monthly credited deposit is 1,626 NIS).
• Self-employed (atzmai) eligibility: 5.5 percent of business income is the ceiling used for the 45A credit (verify the exact annual figure each year on kolzchut.org.il or pensuni.com before applying to a return)
• Claim on Form 1301 in the credits section, separate line from nekudot zikui

Section 47: pension deduction (nikui)

• Reduces taxable income (not tax directly) by the contribution amount
• Self-employed can deduct up to 11 percent of annual business income (capped at the qualifying ceiling)
• Employee contributions above the 7 percent 45A threshold can qualify under Section 47
• Always preferred for high marginal-rate taxpayers; verify whether a self-employed filer benefits more from 45A (credit) or 47 (deduction) based on their marginal bracket

Combined rule: the same shekel cannot double-count. Self-employed filers typically structure deposits so that part qualifies for 45A (credit) and part for 47 (deduction) within the 16.5 percent combined ceiling.

Calculation example (self-employed, 300,000 NIS annual business income):

• Pension deposit: 33,000 NIS (11 percent of income)
• Section 47 deduction: reduces taxable income by up to 33,000 NIS (marginal benefit depends on bracket)
• Section 45A credit: 35 percent of up to 5.5 percent of income = up to 16,500 NIS eligible, so up to 5,775 NIS direct tax reduction
• Always verify the exact current ceilings at kolzchut.org.il before quoting a number

Step 3.6: Donation Credit (Section 46)

Donations to a recognized public institution qualify for a tax credit under Section 46 of the Income Tax Ordinance. This is a frequently-missed refund source for salaried filers (often claimed via Form 135).

• Credit rate: 35 percent of the eligible donation amount for individuals (companies get the corporate-rate credit). The credit reduces tax liability directly, like nekudot zikui, not taxable income.
• Recognized institution requirement: the recipient must hold a valid Section 46 recognition (mosad tziburi mukar lefi seif 46). A donation to a charity without 46 recognition does NOT qualify. Verify the institution's 46 status (the Tax Authority publishes the approved list).
• Minimum floor: there is an annual minimum donation below which no credit is given (a few hundred NIS, indexed annually, on the order of 200 NIS for recent years). Verify the current-year floor before quoting it.
• Ceiling: the eligible donation in a year is capped at the lower of 30 percent of taxable income or an absolute annual cap. Excess above the ceiling can be carried forward (up to three years).
• Documentation: keep the original donation receipts marked with the institution's 46 recognition; the ITA may require them.
• Always verify the current floor, ceiling, and the institution's 46 status before quoting figures.

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):

| Bracket | Annual Income Range (NIS) | Rate | |---------|--------------------------|------| | 1 | 0 - 84,120 | 10% | | 2 | 84,121 - 120,720 | 14% | | 3 | 120,721 - 228,000 | 20% | | 4 | 228,001 - 301,200 | 31% | | 5 | 301,201 - 560,280 | 35% | | 6 | 560,281 - 721,560 | 47% | | Surtax | Above 721,560 | See below |

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: In addition to income tax, self-employed individuals pay Bituach Leumi (National Insurance) and health tax on their business income. These are calculated separately and are not part of the income tax return itself, but the 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 uses standardized codes to report financial data in a uniform format for the Tax Authority's computerized systems. The form has two main sections:

Section A: Profit and Loss Statement

• Revenue by source type (sales, services, other income)
• Cost of goods sold / cost of services
• Operating expenses (salaries, rent, utilities, professional services)
• Financial expenses and income
• Depreciation and amortization
• Net profit / loss before tax
• Tax adjustments (non-deductible expenses, timing differences)

Section B: Balance Sheet

• Current assets (cash, receivables, inventory)
• Fixed assets (equipment, vehicles, real estate)
• Current liabilities (payables, short-term loans, accrued expenses)
• Long-term liabilities (loans, mortgages)
• Equity (share capital, retained earnings)

Preparation guidelines:

• All amounts must be in NIS
• Use the Tax Authority's standardized item codes (available at misim.gov.il)
• Data must match the audited financial statements exactly
• Submit electronically via the SHAAM online portal
• The form is typically prepared by the CPA using accounting software (Hashavshevet, iCount, Rivhit) that supports Form 6111 export

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

Form 126 (Annual Employer Salary Report): Employers must file Form 126 summarizing all employee compensation and withholdings for the tax year.

| Field | Description | |-------|-------------| | Employee details | ID number (teudat zehut), name, start/end dates | | Gross salary (sachar bruto) | Total annual compensation per employee | | Tax withheld (mas shenukah) | Income tax deducted at source | | Bituach Leumi withheld | Employee's National Insurance contribution | | Health tax withheld | Employee's health insurance contribution | | Pension contributions | Employee and employer pension contributions | | Keren Hishtalmut | Employee and employer training fund contributions | | Benefits in kind | Car, phone, meals, other taxable benefits | | Exempt payments | Severance (pitzuim), convalescence pay (dmei havra'a) |

Deadline: April 30 of the following year. Must also issue Form 106 (annual salary summary) to each employee by March 1.

Form 856 (Annual Supplier Payments Report): Businesses must report payments to suppliers and service providers exceeding the reporting threshold.

| Field | Description | |-------|-------------| | Supplier details | ID/company number, name, address | | Total payments | Gross amount paid during the year | | Tax withheld | Amount withheld at source (nikui mas bemakor) | | Payment type | Services, goods, rent, commissions, etc. |

Deadline: April 30 of the following year. Required for payments to freelancers, contractors, consultants, landlords, and other non-employee recipients.

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

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Source & license

This open-source skill is cataloged on AgentStack and links to its original source — we do not rehost the code.

• Author: skills-il
• Source: skills-il/tax-and-finance
• License: MIT

Install and usage instructions live in the source repository linked above.