Show Me the Money - Understanding the Israeli Paycheck

When I was living and working in the U.S. I will admit that I never once really studied and analyzed my pay stubs in order to make sure all the deductions and tax withholdings were correct. I trusted the system and assumed the automated payroll systems were likely right.


In Israel, NEVER assume.


I have learned that reviewing my pay stub or תלוש משכורת every month has become a crucial exercise because I have found various mistakes. In order to review, the first step is understanding what exactly you are reviewing. This is no small feat when you first move to Israel because the pay stubs are way more detailed in Israel than the ones I used to receive in the U.S.

Confession time. Despite the fact that I have been receiving 12 pay stubs a year for 6 years (i.e., a total of 72 pay stubs) and despite the fact that I am an accountant, I did not fully understand all of the details on my pay stub until I started writing this post. I understood the basics of course, my base salary, vacation days, etc. but, beyond that, my תלוש and I had an unspoken, firm don't ask don't tell policy when it came to all of the other gritty details. Now, after having invested the time to write this post and share the important information with all of you, it's like a light bulb has gone off in my head. I finally (mostly) understand where all my money is going!


Employee Benefits

Below I breakdown and explain some general concepts in the Israeli pay stub. It's important to keep in mind though that NOT ALL PAY STUBS ARE CREATED EQUAL. The information on the pay stub will vary depending on the employee benefits you have agreed to with your employer. Some common employee benefits include:

  • Pension fund (קרן פנסיה or קופת גמל) - the employer contributes 6% of the monthly bruto (or gross) salary and the employee contributes 6% (but can contribute up to 7%). Generally these amounts are paid on the base salary only. Usually this benefit starts about 6 months after your employment start date.

  • Severance pay (פיצויים) - one benefit that all workers are entitled to without a deduction from their salary is severance pay. The employer contributes 8.33% of the base salary (the employee is entitled to receive severance equal to one month salary for every year they worked at the company). This amount may be paid to the employee if they are laid off, and sometimes if s/he resigns as well. Alternatively, this may be contributed to a pension fund and the employee can choose to remove it in case they are laid off or to keep it in the pension fund.

  • Keren hishtalmut (Advanced training fund or sabbatical fund) - this is a really cool benefit in Israel which is not offered by every employer. Essentially, if offered, the employer contributes 7.5% of the gross salary and the employee contributes 2.5% for 6 years. At the end of the 6 years, the employee can choose to withdraw the funds tax-free. If you ever wondered how Israelis can afford to travel so much or renovate their apartments, the keren hishtalmut is often the answer. Fun fact - the concept of the keren hishtalmut is based on the Jewish shmitah law (where land is worked for 6 years of the agricultural cycle and on the 7th year (or the sabbatical year) the land is left fallow). #onlyinisrael

  • Fringe benefits - In addition to the other aspects of your salary, it's important to understand what you will be receiving as fringe benefits. These also vary depending on the industry and size of the employer but can include travel allowance, company car, company phone, דמי הבראה or vacation subsidy often paid in the summer, supplemental health insurance or dental insurance and, often for hi-tech companies, a food allowance (commonly known as 10-bis).

Understanding the Israeli Pay Stub

Below is a sample pay check and an explanation of the various components. As mentioned, the format can vary significantly for different employers but most of the basic components should be the same.





It is important that you fully understand the benefits being offered by your employer and you ensure your employment contract is consistent with the benefits discussed. In case you need a refresher before entering into any negotiations, see my post on understanding Israeli culture. The most important points to remember are that "No" is just the start of the conversation and don't be a freier!


Taxes in Israel


Here I will try to provide the basics for you with respect to Israeli tax for olim but please understand that I am not providing this information as a professional accountant, most importantly because when it comes to Israeli individual taxation, I am not a professional.


Tax Rates In Israel, the ordinary individual marginal income tax rates on earned income for the 2020 tax year are as follows:

  • 10% on up to NIS 75,720

  • 14% on NIS 75,721 - NIS 108,600

  • 20% on NIS 108,601 - NIS 174,360

  • 31% on NIS 174,361 - NIS 242,400

  • 35% on NIS 242,401 - NIS 504,360

  • 47% on NIS 504,361 - NIS 649,560

  • 50% on NIS 649,561 and above

Passive income is usually at a rate of 25%-33%.


Now let's discuss the Israeli personal tax credit system which is based on credit points. This doesn't quite work like an American Amex where the more you spend, the more credit points you get. This is the Jewish version where the more kids you have, the more credit points you get.


For 2020, each credit point is worth a deduction of NIS 2,628 per year. The credits can include the following points:

  • Man - 2.25 credit points

  • Woman - 2.75 credit points

  • 1-2.5 credits for each child between 0-18 (split between the father's pay check and the mother's)

  • Olim chadashim receive 3 points for the first 18 months from the date of Aliyah, 2 credit points for the next 12 months and 1 credit point for the next 12 months.

  • Other points may be available for various other factors, e.g., disabled child or single parent, released soldiers, etc.

In addition, new olim and returning residents (who lived abroad 10 years) may enjoy a 10-year Israeli tax exemption for non-Israeli source income and gains – this does not apply to any work performed in Israel.


The information included in this post included references from various other sources including: nefesh b'nefesh, Anglo list, papaya global and A Financial Guide to Aliyah and Life in Israel by Baruch Labinsky.

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