Definition
Employment income (hakhnasa me'avoda) under Section 2(2) of the Income Tax Ordinance encompasses all payments and benefits received in connection with an employer-employee relationship. This includes: base salary, overtime pay, bonuses and commissions, tips, benefits-in-kind (company car, phone, meals), stock options and RSUs, severance pay, and any other compensation.
Taxable Components of Employment Income
| Component | Taxable? | Special Rules |
|---|---|---|
| Base salary | Yes (fully) | Taxed at marginal rates |
| Overtime | Yes (fully) | 125%/150% of hourly rate |
| Annual bonus | Yes (fully) | May be taxed at cumulative rate |
| Commissions | Yes (fully) | Part of regular income |
| Company car | Yes (benefit value) | ~2.48% of list price/month |
| Meals/food | Partially | Some exempt below threshold |
| Stock options (102) | Deferred | 25% at sale (capital route) |
| Severance pay | Partially exempt | ₪13,310 × years exempt |
| Training fund employer share | Exempt (within limits) | 7.5% up to ceiling |
Example – Total Taxable Income
Employee receives: ₪20,000 base salary + ₪2,000 overtime + ₪500 meal benefit + car benefit ₪3,500 = ₪26,000 taxable income per month.
Less: pension deduction (₪1,400) and NI deduction = ~₪23,500 taxable base for income tax calculation.
בסיס חוקי
- Section 2(2) – Income Tax Ordinance (Employment income)
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.