Reclaim Overpaid Tax: Annual Income Tax Calculator for 2017

(Calculator download link about halfway down the page)

Every year, the Tax Authority collects hundreds of millions of shekels in overpaid tax, and people don’t bother to apply for a refund, either because they aren’t aware that they’ve overpaid or because it’s too much effort.

Instead of opting for a tax system based on simple rules that everyone can understand, successive governments have built a tax system Talmudic in its complexity: a catastrophic waste of time, sheets of paper and manpower. One of the government’s sneaky little tricks to increase its revenue is by making it very easy to pay tax and much more difficult to claim back tax1. A few companies have even sprung up offering to do it for you and save you the effort. In the UK, by contrast, HMRC automatically does a calculation for you and sends you a cheque in the post. Well, overpay no more! Collectively we will send in so many tax reclaim forms that it’ll be easier for the clerks at the Tax Authority just to refund us automatically!

Why tax gets overpaid

The principal reason for overpayment results from the way in which tax is deducted for salaried employees. Though the amount of tax you’re supposed to pay is based on your annual income, employers deduct it on a monthly basis as if you earned / will earn the same salary in every other month of the year. This is fine if you boringly stay with the same employer for the whole tax year (from 1st of January until 31st of December). Employers’ tax calculators are even sophisticated enough to take into account pay rises, bonuses etc and still deduct the right amount of annual tax. But if you are unemployed for part of the year, or switched employer, or any number of other situations, the pay-as-you-earn monthly calculation often becomes incorrect.

Because of this, it’s worth doing a calculation at the end of the year, considering all your income, tax credits, pension contributions and the like, to see how much tax you ought to have paid, and comparing it to how much you actually paid. Good news! I have built2 a handy spreadsheet allowing you to do just that. More on the spreadsheet below.

What does this calculator cover?

The calculator is aimed at regular salaried employees in Israel. It should help reveal overpaid tax due to:

  • Working for more than one employer
  • Changing employer during the year / being unemployed for part of the year
  • Changes in family status during the year (e.g. birth of a child, divorce)
  • Charitable donations
  • Entitlement to extra tax credits without informing the employer (e.g. Oleh Hadash, degree holder, family status change)

What this calculator doesn’t cover

The calculator is limited in its scope and doesn’t cover more complicated tax situations which, as per above, add far more complexity to the rules.

  • Rental income, gambling income, stock market income (the rates on these are different)
  • Independent workers
  • Withdrawals from Pitsuyim / pensions before retirement
  • Ma’anak Avoda
  • Tax discounts for living in certain periphery towns (סעיף 11)
  • And many more (See here for full list of rates, deductions, credits and ceilings for tax calculation (2016)).

Disclaimer

At any rate, I am not a tax professional, and this calculator is an amateur production, so should be viewed as advisory only and not the final say on how much tax you can reclaim or should have paid.

The calculator

Download here:

Israeli Tax Calculator Annual 2017

Download from Google Drive (includes calculator for 2016 too)

 

How to use this calculator

It may look daunting at first glance but bear with me as it’s not as complicated as you think!

annualcalculator1
Only fill in the blue sections!
  • You, as the user, only insert data in the blue areas (see screenshot above). All the rest of the spreadsheet is just for the processing stage of the calculation.
  • The spreadsheet is filled in with an example case. Obviously, remove the example data and replace it with yours.
  • There are four sections to fill out:
    1. All gross incomes liable for income tax: here you fill in (in the “Taxable Income” column) how much your gross income was for the year. This includes all taxable incomes: base salary, cash benefits, benefits in-kind, and any others – and will be written on the payslip as “חייב במס הכנסה” or “ברוטו למס הכנסה”. You don’t need to include all the information about employers and dates (as these aren’t used in the calculation), and can (if you prefer) just put one total figure for the year if you know it.
      Also fill in (in the “Income Tax Paid” column) how much income tax you actually paid throughout the year – note that this should only include Mas Hakhnasa, not Bituah Le’umi or Bituah Bri’ut (these are part of a whole separate system of taxes, just because).
    2. Tax credits3: Fill in each month with the monthly tax credits (נקודות זיכוי) for that month. The default is 2.25 for men and 2.75 for women, but you can get extra points for all sorts of things, such as having children, being an Oleh Hadash, recently completing a degree, and many more.
    3. Pension (employee contributions only)4: This section refers to the employee’s contributions to Keren Pensia, Bituah Menahalim and/or Kupat Gemel. Do not include Keren Hishtalmut contributions. Do not include the employer’s contributions or the Pitsuyim component. It also doesn’t include payments to Life Insurance or Dependents Insurance if these are made as separate payments from the salary.
    4. Charitable donations: little known, you can get back from the taxman 35% of your charitable donations! The caveat is that the donations must add to more than 180 shekels and less than 30% of annual income. Only donations to a “Mosad Tsiburi” with tax receipts are eligible. You can’t get back more than you’ve paid in tax.
  • If you’ve filled everything in correctly, the yellow box (see screenshot below) will plop out a nice little summary of how much the taxman owes you.

    annualcalculator2
    The yellow box gives the conclusions.
  • There’s two more blue input boxes, for when you submitted the request and when you receive the payment. These are less important as they are used to calculate how much interest the taxman will pay.

Even more good news

Did I say interest? You read correctly! In a further insane loophole of the Israeli tax system, the money is returned at a whopping 4% annual interest starting January 1st 2018 for tax year 2017, and is also inflation linked! That’s right – better rates than any banks or government bonds offer in the current environment, but with all the security of a government bond. Added bonus: these extra earnings are not taxable income. You have a full 6 years to reclaim the tax: someone with great fortitude might even wait towards the end of this period to capitalise on the extra return.

What do I do to actually reclaim the money?

From my understanding, you will need to fill out Tofes 135 (דוח לשכירים). This is a user-unfriendly two-page “short” (!) form in size 2 font, with nice ambiguous and obscure field names to make it harder to fill out. You’ll need to send it to the Tax Authority with a bunch of accompanying documents to prove your claim, even though they have almost all the data already.

Questions and comments

The goal of this calculator is to help as many people as possible pay the right amount of tax without having to pay fees to a company or an accountant. If anyone has any suggestions of how to make the calculator simpler and easier to use, or any other improvements, please let me know!

Please also feel free to edit the calculator and use it or parts of it as the basis for any further creations.

Happy reclaiming!

Footnotes

1. This trick is used more generally by the government in all areas. Mechanisms for getting money off them are always more difficult and less user-friendly than mechanisms for them to get money from you, which are usually seamless. Two examples: compare the effort required to pay Arnona to the effort required to get an Arnona discount; compare the process for claiming unemployment benefits to the process for paying national insurance.
2. With thanks to my friend Alon, who created an initial draft and helped with the remainder of the construction.
3. For 2017, you get 215 shekels back from tax for every monthly tax credit (although you can’t get back more than you’ve paid in tax).
4. For 2017, you get 35% back from tax for all contributions up to 7224 shekels per year (although you can’t get back more than you’ve paid in tax).

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3 thoughts on “Reclaim Overpaid Tax: Annual Income Tax Calculator for 2017

  1. Moses

    This is really great !!!
    I heard that there is the possibility to reclaim taxes up to past 6 years.
    Would it be possible to create similar calculators also for the previous years (in my case, I would be interested in 2014 and 2015)

    Like

    1. I’ve updated the Google Docs link so the spreadsheet there now has a tab for 2016. In theory it’s possible to create ones for earlier years just by changing the values in the green boxes (and likely only the tax brackets, Hakhnasa Mezaka and tax credit value need changing) – but I’m not certain that the rules themselves weren’t different back then so don’t want to mislead by creating calculators for those years.

      In practice, if you think there’s a good chance you overpaid tax for those years, you could “just” fill out the form, submit it to the Tax Authority, and let them do the calculation.

      Like

  2. Pingback: Navigating Israeli Bureaucracy – Cheat Sheet – Remember The Fish

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