Tax Treatment
All bonuses and grants from an employer are fully taxable as employment income. This includes: annual performance bonuses, project completion bonuses, signing bonuses, holiday bonuses, and any discretionary payments. The bonus is added to the month's gross income and taxed at the cumulative annual rate.
Withholding Calculation
When a bonus is paid in a single month, the employer calculates the tax using the 'annual cumulative' method – the total earnings for the year (including the bonus) are annualized, and the appropriate average rate is applied. This prevents over-withholding that would occur if the bonus were taxed at the marginal rate for that single month's income.
Example
Employee earning ₪15,000/month receives a ₪30,000 annual bonus in December.
Annual salary: ₪180,000 + ₪30,000 bonus = ₪210,000
The employer calculates withholding on the cumulative annual income of ₪210,000 and deducts the appropriate amount in December, accounting for all taxes already withheld during the year.
בסיס חוקי
- Section 2(2) – Employment income
- Income Tax Regulations – Withholding calculation methods
Important Note: The information on this website is for general informational purposes only and does not constitute professional tax advice. Consult a qualified tax advisor before making financial decisions.