The change in the tax brackets: the employees who will benefit from an additional NIS 5,000 per year

In 2026, the disposable annual income of all employees who earn more than about NIS 16,000 and up to about NIS 25,000 will increase by NIS 1,000 to 5,000. This, following the changes in the wage scales that came into effect recently and lead to the fact that many employees will pay less tax, and will even receive a retroactive refund of tax they have already paid to the state. How does it work and who is entitled to the benefit? Globes is in order.

● The employees who will receive an increase of hundreds of shekels in their pay slip
● Following the change in the tax rates: these are the workers who will receive a thousand shekels in the next paycheck

What are the salary tax rates?

In Israel there are seven tax brackets, starting from 10% for income tax at the lowest salary levels and up to 50% at the highest salary levels. The structure of the tax brackets expresses the principle according to which the tax burden should be distributed in a graduated manner, giving relative relief to those with low and medium incomes, and imposing a higher burden on those with high incomes. Until the last amendment, those with medium incomes would reach high tax rates relatively quickly, hence the change.

What does the amendment stipulate and what will be the amount of the tax refund?

The approved law changes the income range of two tax brackets: 20% and 31%, compared to the income range as it was until now. The 20% tax bracket will be expanded, so that instead of its range being between NIS 10,061 and NIS 16,150 per month, it will be expanded up to NIS 19,000 per month. The next tax rate, 31%, will start from NIS 19,001 a month and instead of being up to NIS 22,440 a month, it will be expanded up to NIS 25,100 a month. Accordingly, the next tax rate – 35%, will start at NIS 25,101 per month.

CPA attorney Amos Maimon, from the office of Yaron Elder Peller Shortz & Co., explains that “the amount of the monthly benefit to which each employee is entitled, as well as the amount of the benefit for the first four months of the year (retroactively, 1, 36) are determined according to the amount of the salary.” He demonstrates: an employee who earns about NIS 17,000, for example, was entitled and was subject to the 31% tax until the amendment, now he will be subject to by 20% and will save NIS 94 each month, which is NIS 1,122 per year. The annual tax savings for an employee with an income of NIS 22,000 will already be more than double and will be NIS 3,726; and an employee who earns between NIS 22,440 and NIS 25,100, and is forced to part with 35% of his salary in favor of income tax, will benefit from a new tax rate of 31% and an additional annual income of NIS 5,039, all amounts are net.

From which month will they start seeing the tax benefit in the slip?

CPA Assaf Daniel, Chief Financial Officer of Okatz Systems, explains that “the law was published in the records on March 31, 2026 and applies retroactively from January 1, 2026. In practice, some employers chose to implement the change as early as the March slip, and others only implemented it in the April slip. This is in accordance with the date of the update of the salary system of the software house they work with. The updated schedule of deductions for the 2026 tax year has been published by the Tax Authority in April; The validity of the tax reconciliations from 2025 has been extended until May 13, 2026 due to Passover and system update delays.”

Does the change in salary levels have an effect on the self-employed?

Advocate CPA Maimon: “Yes. The change will affect both the self-employed and retirees. The tax benefit is relevant to all of an individual’s income taxed at marginal tax, when the amount of monthly income is higher than NIS 16,150 and the amount of annual income is higher than NIS 193,800.”

CPA Daniel adds that “the self-employed do not feel the impact immediately, since they pay regular tax advances to the state and not tax deducted by an employer. A self-employed person whose income exceeds NIS 193,800 per year is entitled to reduce his advances according to the change in the levels. The full effect will be reflected in the annual report for 2026, where the tax will be calculated according to the new rates.”

Is the employee required to take active action for the benefit?

Employees who do not need to make tax reconciliations, will not require it now, and it is not necessary to take any active action to benefit from the benefit. “After the payroll software is updated by the software houses, the employees will be entitled to an automatic tax refund for the first four months of the year,” explains attorney and CPA Maimon.

As for the employees who had to perform tax coordination, the Tax Authority clarified that employees who performed tax coordination during the year 2026, are not required to update it following the spacing of the steps and the required update will be carried out by the authority proactively; Employees who did not perform tax coordination in 2026, will be able to submit an updated application until May 13 of this year.

Are those who were fired in January-March 2026 entitled to a tax refund?

According to CPA Daniel, “Employees who finished their work between January and March 2026 will not receive the retroactive refund through the payslip. Their entitlement to the benefit is preserved, and they will be able to claim the difference by submitting an application for a tax refund to the Tax Authority, as part of the annual report for 2026, and subject to the annual tax data.”

Daniel explains that “the tax is calculated annually and not monthly, and therefore, when the employee applies to the income tax, it will check the amount of the annual salary, according to the 106 forms that the employee will present, and based on this data, the tax refund will be calculated, to the extent that he is entitled to it. Those who started working in 2026, will be able to receive a refund as part of the report that will be submitted in 2027.”