Most Salaried Workers to See Higher Net Pay Today

Five-year income tax reform plan takes another step.

Most workers will see more money when they receive their January 2008 salaries.

Israelis, who generally receive their monthly paycheck between the first and the ninth of the following month, will see their net salaries increase between NIS 44 and 919, due to changes in tax brackets and rates.

These changes were part of the five-year reform plan in income taxes for 2006-2010. In addition, more tax reductions are scheduled for January 1 of the next two years.

The actual increase in how much employees will receive depends on their gross salaries - the more you make, the bigger your increase.

Low wage earners will see only a few dozen shekels more each month, while middle income earners will gain hundreds of shekels.

The best off, those making more than NIS 50,000 a month in gross terms, will each get NIS 919 more a month.

The maximum tax bracket will drop a percent to 47% in 2008. At the end of the planned reform in 2010, the highest tax rate will be only 44%.

The biggest gainers - proportionally - are those in the second and third tax brackets: lower-middle class wage earners.

In addition, the value of "tax points," the equivalent of the standard deduction in Israel, increased on January 1.

Now all citizens will have a monthly standard deduction of 2.25 points, worth NIS 189, up from NIS 178 in 2007. Women receive 2.75 points.

Since only 50% of the population actually pays income tax - the rest make too little - only they are benefitting from the income tax reforms.

Therefore, the Knesset approved a pilot negative income tax project in 2007. It will provide benefits to employed persons who make to little to pay income taxes.

The negative income tax will start this year, and will be implemented only partially in four areas where the "Wisconsin" welfare to work plan is used. Only 10,000 wage earners will enjoy the negative tax.

Workers earning salaries between NIS 1,725 a month - 45% of the minimum wage - and NIS 5,200 will enjoy the benefits. Such workers with one or two children under 19 will receive up to NIS 275 a month. Those with three or more children will get up to NIS 400 a month.

Only people over age 23 will be included in the program, while those over 55 can benefit even if they have no children, or if their children are over 19.

The negative income tax will be paid four times a year, in equal payments, directly into their bank accounts, so that employers cannot exploit them.

Employees who enjoy a car provided by their employers will enjoy it a bit less this year.

According to a decision by the Knesset Finance Committee, as of January 2008 the taxes on such cars will rise, and the value of the car toward taxable income will be increased.

The additional taxes will total NIS 200 to NIS 970 more a month, depending on the value of the car and the employee's tax bracket.

Another change many salaried employees may notice is deductions for pensions. Many workers who previously did not have a pension plan will now be covered as of January 1.

According to the mandatory pension agreement reached in 2007, all employers are now required to enroll workers in a pension plan and make the appropriate deductions.

This includes all workers who have been in the same workplace for at least nine months, though there are other qualifications for workers, too.

These workers will see changes in their pay slips: both the employee and the employer will contribute to the pension fund, whose details will be listed.