Caps for social condition

Eldad Hassid, CPA, Guberman Group 923

Introduction
Following the publication of the extension order for comprehensive pension insurance in the economy, as of 2008, the employer is obligated to insure every employee in pension insurance/ insurance management.
In addition, the employer is obligated to contribute to the severance pay fund of the employee.

Exemption from income tax on employer's contributions to pension insurance and occupational disability insurance
As of 2018, an employee is entitled to an exemption from income tax on employer's contributions to pension insurance and to a work disability that doesn’t exceed 7.5% of his salary and doesn’t exceed a cap of 1,858 NIS per month.
An employee whose employer secures over 7.5% of the salary or over 1,858 NIS per month for benefits and occupational disability insurance will be liable to pay taxes (income tax, national insurance and health tax) on the employer contributions above these amounts.

Example:
An employee earns 10,000 NIS a month:
The employer pays 5% of the salary to benefits and 2% of the salary for occupational disability insurance - a total of 7% of the salary, which amounts to 700 NIS per month (10,000 NIS X 7%) and therefore not considered as income and the employee
will enjoy exemption from tax payments.
If the employer will pay 9% of the salary, i.e., 900 NIS, the employee will be liable for paying income tax on provisions exceeding 7.5% of the salary, i.e. 1.5% of the salary (9% -7.5%), equivalent to 150 NIS.

An employee earns 40,000 NIS a month:
The employer pays 5% of the salary to benefits and 2% of the salary for occupational disability insurance- a total of 7% of the salary, which amount to 2,800 NIS per month.
the employee will be taxed (income tax, national insurance and health tax) in addition to his income salary an additional 942 NIS for the deposit that higher the ceiling (2,800-1,858)

Exemption from income tax on employer's contributions to severance
The cap for severance pay of which an employee will not be taxed is 2,732 NIS per month.

Examples:
An employee earns 10,000 NIS a month:
The employer deposit for severance 8.33% (The minimum percentage of the provision of severance pay is 6%) - i.e. 833 NIS (10,000 NIS X 8.33%).
The employee will not be taxed at the time of deposit to the severance pay fund because the deposit is below the exemption ceiling.

An employee earns 40,000 NIS a month:
The employer deposit for severance 8.33%- i.e. 3,332 (40,000 NIS X 8.33%),
the employee will be taxed on the difference between the actual deposit and the exemption ceiling.
The employee will be taxed (income tax, national insurance and health tax), in addition to his income from salary, an additional 598.67 NIS for a deposit that higher than the ceiling for severance pay (3,332-2,732)